Saudi Arabia to go for IPO for Aramco?

It has been reported that Saudi Arabia is considering selling shares in its state-owned company, Saudi Arabian Oil Co. or Aramco, which is the largest oil producer globally. The privatisation is reportedly to assist the country, given the sharp decline in oil prices.

In an interview with the Economist, Mohammed bin Salman, the deputy crown prince, said that a potential IPO is under review, with a decision to be made in the next few months.

In 2015, Aramco had proven reserves of over 261 billion barrels of crude oil, representing 15% of global deposits. By contrast, Exxon Mobil Corp., the largest non-state-controlled oil company, had proven reserves of 25.3 billion barrels of oil equivalent in 2014.

Analysts say that if listed, Aramco would be worth over US$1 trillion.

Salman is quoted as having said that the listing on the stock market would be in the interest of the Saudi market and Aramco “by helping to promote transparency and counter corruption.” He did not say how much of the company could be sold.

Salman, who as chairman of the country's new Council of Economic and Development Affairs, has broad authority over the economy, said the government would sell a range of state assets in healthcare, education and some military industries. "It will decrease some of the pressure that the government has, and some of them may create good profit," he told the Economist.

In 2008, Aramco floated a subsidiary called Rabigh Refining and Petrochemical Co, which processes 400,000 barrels a day, and has a market capitalisation of US$2.3 billion.

According to the Economist, options presented for Aramco include selling shares in the parent company, which controls oil exploration and production, to offering smaller units that operate petrochemical, refining and marketing. The Economist said about 5% of the company could be offered initially in Riyadh and more shares could be sold later, although the country would retain control.

According to a Bloomberg report, Saudi Arabia earned US$285 billion from petroleum exports in 2014. But the slump in crude prices has slashed revenues, since the crude price sold by OPEC slid to US$30 a barrel on Wednesday, its lowest level in almost 12 years, against the backdrop of volatility in the Chinese stock market. OPEC members are said to have lost about US$500 billion in revenue last year because of the flagging prices, according to the International Energy Agency.

Even though the government is in a deficit, Salman says that the Saudi economy is far from a crisis. The country increased its non-oil revenues by 29% and taken steps to curb public spending, he said in the interview with the Economist.