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Energy Investors Suffer A Setback, As Riyadh Prepares To Delay Saudi Aramco Ipo

Biphoo

14 Sep 2017

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Energy Investors Suffer A Setback, As Riyadh Prepares To Delay Saudi Aramco IPO

The Saudi government is reportedly preparing to delay the heavily-anticipated stock market debut of Saudi Aramco until 2019. While the aim is still to launch the IPO in 2018, that timetable may prove to be too ambitious, according to a report by Bloomberg.

It is another sign of the difficulties that governments in the Gulf region are having when it comes to privatising what are often their most valuable assets. These businesses are large and complex, they have not had to face public scrutiny before and do not have the corporate governance structures or culture that most investors expect. Putting those systems in place takes time.

In addition, governments also face a difficult balancing act in trying to separate out the units most suitable for privatization. They need to identify the areas of the businesses which will attract sufficient interest from investors but they also want the state to retain control over the underlying oil and gas fields.

Lastly, and perhaps most importantly, any moves to sell stakes in local oil companies are often political divisive. That was seen in January this year, when workers at the Kuwait Oil Company went on strike over plans to privatize part of that business. All Gulf governments know they have to move carefully if they are to avoid a public backlash.

Doubts over reforms

The latest setback for the Aramco IPO comes soon after news emerged that the government in Riyadh is in the process of revising some of the targets in its National Transformation Plan, part of a wide-ranging and extremely ambitious set of economic reforms known as Vision 2030.

The Aramco listing is a key element of that plan, with up to 5% of the oil giant likely to be sold to boost the state's diversification efforts. Any delay in the IPO will raise further doubts about the ability of Crown Prince Mohammed Bin Salman to execute the rest of the reform program he has embarked on.

Other Gulf governments have also been linked to the sales of shares in their oil and gas businesses. In July, Abu Dhabi National Oil Company (Adnoc) said it was examining a plan to float minority stakes in some of its services businesses. It made clear that Adnoc itself will remain fully owned by the Abu Dhabi government.

Dominic Dudley is a freelance journalist with almost two decades' experience in reporting on business, economic and political stories in the Middle East, Africa, Asia and Europe.

Biphoo

14 Sep 2017

459 Views