Saudi Aramco takes steps to maximize IPO valuation

Updated 20 June 2017
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Saudi Aramco takes steps to maximize IPO valuation

DUBAI: The government of Saudi Arabia and Saudi Aramco are taking further steps toward maximizing the value of the state-owned oil giant in preparation for the sale of shares to citizens and international investors next year, according to reports.

The measures reportedly include moving some liabilities from Aramco to the government, as well as clarifying the relationship between the oil company and some of the non-oil projects it funds within the Kingdom.

According to a report by the Financial Times (FT), Aramco is looking to present potential investors with a set of “pristine” financial accounts designed to back up the official valuation of $2 trillion put on the company, the largest oil group in the world.

A spokesman for Aramco declined to comment on the report because the matters were still under consideration.

Another person familiar with the matter said that preparing detailed financial accounts was a normal part of the preparation process for an initial public offering (IPO) of shares on a stock exchange.  

There has been some skepticism among international energy analysts that the $2 trillion valuation figure will be reached, but — following a change to the Kingdom’s treatment of oil company taxation earlier this year — independent valuations have been moving upward toward the target.

One factor thought to be affecting investor sentiment has been Aramco’s historic financial support of non-oil projects, ranging from hospitals to sports stadiums.

The spokesman said that such projects were “in the long-term commercial interest of Saudi Aramco and have no material impact on its result.”

In addition to the measures recently taken and the taxation change, Aramco is also believed to have commissioned a new estimate of its overall reserves, vital for deciding valuation and is working with advisers on deciding a dividend policy, which will help determine investor appetite for the shares in any IPO.

The FT, citing four people briefed on the matter, said that the moves “reflected efforts to present a streamlined set of financials to investors.”

It added that an instruction has been issued to shift historical debts from foreign governments, including Jordan and Iraq, from Aramco’s accounts on to the government’s books. 

Under a separate resolution the Kingdom plans to create a mechanism — via a special tax deduction — to compensate Aramco for the financial cost of subsidizing fuels such as petrol for domestic motorists and gas for power generation, the FT added.

It also said that payments owed to Aramco by state entities, such as the national airline Saudi Arabian Airlines, which is also known as Saudia, and the domestic utility Saudi Electricity Company (SEC), will be moved to the Saudi Ministry of Finance.

Aramco is believed to be preparing historic 2015 and 2016 financial statements alongside pro-forma accounts for 2017 to investors for the first time ahead of the IPO.

The market flotation of Aramco will be by far the biggest IPO in history, with a value of $100 billion if, as has been officially suggested, 5 percent of the shares are sold on a $2 trillion valuation.

It is the centerpiece of the Vision 2030 strategy aimed at reducing the Kingdom’s dependence on oil and at transforming the national economy, and will be part of a $300 billion plan to privatize assets held by the Saudi government.

People familiar with the situation say that Aramco has been in talks with the stock exchanges in New York and London with a view to listing some of the shares on those exchanges, in addition to the Tadawul in Riyadh and possibly an Asian stock market.

• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai


US in criminal probe of China's Huawei

Updated 17 January 2019
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US in criminal probe of China's Huawei

  • The Wall Street Journal said the US justice department is looking into allegations of theft of trade secrets from Huawei's US business partners
  • Huawei forcefully denied accusations that his firm engaged in espionage on behalf of the Chinese government

WASHINGTON: US authorities are in the "advanced" stages of a criminal probe that could result in an indictment of Chinese technology giant Huawei, a report said Wednesday.
The Wall Street Journal, citing anonymous sources, said the Department of Justice is looking into allegations of theft of trade secrets from Huawei's US business partners, including a T-Mobile robotic device used to test smartphones.
Huawei and the Department of Justice declined to comment on the media report.
However, Huawei noted that "Huawei and T-Mobile settled their disputes in 2017 following a US jury verdict finding neither damage, unjust enrichment nor willful and malicious conduct by Huawei in T-Mobile's trade secret claim."
The move would further escalate tensions between the US and China after the arrest last year in Canada of Huawei's chief financial officer Meng Wanzhou, who is the daughter of the company founder.
The case of Meng, under house arrest awaiting proceedings, has inflamed US-China and Canada-China relations.
Two Canadians have been detained in China since Meng's arrest and a third has been sentenced to death on drug trafficking charges -- moves observers see as attempts by Beijing to pressure Ottawa over her case.
Huawei, the second-largest global smartphone maker and biggest producer of telecommunications equipment, has for years been under scrutiny in the US over purported links to the Chinese government.
Huawei's reclusive founder Ren Zhengfei, in a rare media interview Tuesday, forcefully denied accusations that his firm engaged in espionage on behalf of the Chinese government.
The tensions come amid a backdrop of President Donald Trump's efforts to get more manufacturing on US soil and slap hefty tariffs on Chinese goods for what he claims are unfair trade practices by Beijing.
In a related move, lawmakers introduced a bill to ban the export of American parts and components to Chinese telecom companies that are in violation of US export control or sanctions laws -- with Huawei and fellow Chinese firm ZTE the likely targets.
"Huawei is effectively an intelligence-gathering arm of the Chinese Communist Party whose founder and CEO was an engineer for the People's Liberation Army," said Republican Senator Tom Cotton, one of the bill's sponsors.
Democratic Senator Chris Van Hollen said in the same statement: "Huawei and ZTE are two sides of the same coin. Both companies have repeatedly violated US laws, represent a significant risk to American national security interests and need to be held accountable."
Last year, Trump reached a deal with ZTE that eases tough financial penalties on the firm for helping Iran and North Korea evade American sanctions.
Trump said his decision in May to spare ZTE came following an appeal by Chinese President Xi Jinping to help save Chinese jobs.