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


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 24 min 51 sec ago
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.