Sabic deal hinders Saudi Aramco IPO

Saudi Aramco signalled another potential delay for the world’s largest initial public offering (IPO) after it started talks this week to acquire a stake in a local petrochemical company.

The state-owned oil firm said it may buy a strategic stake in Saudi Basic Industries Corporation from the country’s sovereign wealth fund. Sabic, as the chemical company is known, carries a market value of little more than $100bn and the sovereign wealth fund controls a 70% stake.

Aramco CEO Amin Nasser said in an interview that the company was still in the early stages of talks and a deal was not certain. “A potential Sabic deal would affect the time frame for Saudi Aramco’s initial public offering,” Nasser told Arabiya television on Friday.

A stake in a chemical company like Sabic makes Aramco less vulnerable to volatile oil prices and would be positive for its revenue, Nasser said. The remarks raise the spectre of a further delay for an IPO that could raise as much as $100bn.

Saudi Energy Minister Khalid al-Falih said in June that while “it would be nice if we can do it in 2019, there is a lot more at stake than just ticking a box and saying, ‘we got this out of the way’.” The plan to sell shares in the state oil giant in 2019 is itself a delay from an original plan for 2018. For almost two years, Saudi officials said repeatedly the IPO was “on track, on time” for the second half of 2018. Earlier in 2018, they admitted it would be delayed into 2019.

In May, Al-Falih said that the sale would “most likely” happen in 2019.

In June, though, the minister hinted at a fresh delay, saying only that it would be nice to sell shares in 2019. And many observers, including members of the company’s senior leadership, doubt whether it will happen at all.

“Aramco is ready for the initial offer and the timing remains subject to the state’s decision,” Nasser told Arabiya on Friday, reiterating a long-held position that leaves the final go-ahead with the royal court.

A key plank of Crown Prince Mohammed bin Salman’s plans to reform the Saudi economy, the Aramco IPO would be a seismic event for financial markets. Saudi officials said they hoped to raise a record $100bn by selling a 5% stake, valuing the firm at more than $2-trillion. Such a deal would dwarf the $25bn raised by Chinese retailer Alibaba in 2014.

However, some analysts, including Sanford C Bernstein and Rystad Energy, have suggested a figure closer to $1-trillion.