Saudi Aramco IPO a step closer as decree creates new corporate structure

Saudi Aramco’s initial public offering could be the biggest in history, raising up to $100 billion. (Reuters)
Updated 05 January 2018
0

Saudi Aramco IPO a step closer as decree creates new corporate structure

DUBAI: Saudi Arabia has taken a crucial step in its plans to privatize some of Saudi Aramco by changing the legal status of the national oil giant into a joint stock company.

By incorporating Aramco, the government will be able to offer equity in it either on domestic or foreign stock exchanges, or to any outside investor. 

The government has said it plans to sell 5 per cent of Aramco as part of the plan to reduce oil dependency and the role of the public sector under the Vision 2030 strategy.

A decree by the Council of Ministers to implement a change in Aramco’s legal status was published on several official sites. A spokesman for the company confirmed the move. “As a customary step in the preparation process for a Saudi initial public offering (IPO), Aramco has been registered and converted from a royal decree company to a joint stock company.

“This establishes the framework to allow future investors to hold shares in the company alongside its shareholder, the government,” the spokesman added.

According to one scenario for the privatization, Aramco would mount the biggest IPO in history, raising as much as $100 billion on international stock markets. Other possibilities being considered include an IPO on the Tadawul market in Riyadh, potentially alongside a private sale of shares to foreign investors.

The government is committed to an IPO in some form this year, and incorporation as a joint stock company shows that this process is on track. There has been speculation that the sale could be delayed or even canceled altogether.

“This is technical but is a necessary step toward the eventual sale. It means that the government will be in a position to push the button on a share sale, now that shares are in existence in a form that investors can hold,” said one Saudi banking source who did not wish to be identified.

Reuters, citing official Saudi sources, reported that Aramco has a fully paid up capital of SR60 billion ($16 billion), divided into 200 billion shares.

It added that the new board of Aramco will have 11 members, of whom six will be appointed by the government, with big shareholders allowed to propose board members at a general meeting of the company.

The government will retain the right to appoint or dismiss the chairman, currently Khalid Al-Falih, who is also energy minister, and to set oil prices, Reuters said.

Saudi Arabia has been the driving force behind a strategy to push oil prices higher by limiting global output of crude, in partnership with Russia. Yesterday Brent oil was trading at $68.02 per barrel, its highest level since late 2015, after the dramatic fall in value in the summer of 2014.

“There is still a lot to do. Apart from choosing the venue or venues for the IPO, Aramco and its advisers also have to decide the nature of the sale. Saudi citizens will be expecting some form of preferential pricing, and the mechanics of that are quite complicated,” said the Saudi banker. Some experts believe the IPO venue will be announced after a meeting of the company and its advisers later this month.

Several international exchanges have been vying for the lucrative right to stage the Aramco IPO. The New York Stock Exchange, the world’s biggest, is believed to be in contest with the London Stock Exchange, which has proposed some rule changes to accommodate the Saudi company.

Other contenders include Hong Kong, which could be an important venue if, as has been suggested, the Kingdom does a private deal with a big Chinese investor. Others intermittently in the frame for the IPO include Tokyo, Singapore and Toronto.

Once the Aramco IPO is set in train, it will signal the start of a further $200 billion worth of privatizations, with virtually all state-owned assets in the Kingdom for sale, from power generators and transport infrastructure through to hospitals, schools and even football clubs.


Malaysia reviews China infrastructure plans

Malaysia’s former PM Najib Razak (AFP)
Updated 18 June 2018
0

Malaysia reviews China infrastructure plans

  • Malaysia's scandal-mired former PM Najib Razak signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.
  • New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

KUALA LUMPUR: Malaysia has been a loyal partner in China’s globe-spanning infrastructure drive, but its new government is to review Beijing-backed projects, threatening key links in the much-vaunted initiative.

Kuala Lumpur’s previous regime, led by scandal-mired Najib Razak, had warm ties with China, and signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.

But the long-ruling coalition was unexpectedly voted out last month by an electorate alienated by allegations of corruption and rising living costs.

Critics have said that many agreements lacked transparency, fueling suspicions they were struck in exchange for help to pay off debts from the financial scandal which ultimately helped bring down Najib’s regime.

The new government, led by political heavyweight Mahathir Mohammed, has pledged to review Chinese deals seen as dubious, calling into question Malaysia’s status as one of Beijing’s most cooperative partners in its infrastructure push.

China launched its initiative to revive ancient Silk Road trading routes with a global network of ports, roads and railways — dubbed “One Belt, One Road” —  in 2013.

Malaysia and Beijing ally Cambodia were seen as bright spots in Southeast Asia, with projects in other countries often facing problems, from land acquisition to drawn-out negotiations with governments.

“Malaysia under Najib moved quickly to approve and implement projects,” Murray Hiebert, a senior associate from think-tank the Center for Strategic and International Studies, told AFP.

Chinese foreign direct investment into Malaysia stood at just 0.8 percent of total net FDI inflows in 2008, but that figure had risen to 14.4 percent by 2016, according to a study from Singapore’s ISEAS-Yusof Ishak Institute.

However, Hiebert said it was “widely assumed” that Malaysia was striking quick deals with China in the hope of getting help to cover debts from sovereign wealth fund 1MDB.

Najib and his associates were accused of stealing huge sums of public money from the investment vehicle in a massive fraud. Public disgust at the allegations — denied by Najib and 1MDB — helped topple his government.

Malaysia’s first change of government in six decades has left Najib facing a potential jail term.

New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

The project was in its early stages and had not yet received any Chinese funding as part of “One Belt, One Road.” But Chinese companies were favorites to build part of the line, which would have constituted a link in a high-speed route from China’s Yunnan province to trading hub Singapore, along which Chinese goods could have been transported for export.

Work has already started in Malaysia on another line seen as part of that route, with Chinese funding — the $14-billion East Coast Rail Link, running from close to the Thai border to a port near Kuala Lumpur.

Mahathir has said that agreement is now being renegotiated.

Other Chinese-funded initiatives include a deep-sea port in Malacca, near important shipping routes, and an enormous industrial park.

It is not clear yet which projects will be amended but experts believe axing some will be positive.

Alex Holmes, Asia economist for Capital Economics, backed canceling some initiatives, citing “Malaysia’s weak fiscal position and that some of the projects are of dubious economic value.”

The Chinese foreign ministry did not respond to request for comment.

Decoder

What is the "One Belt, One Road" initiative?

The “One Belt, One Road” initiative, started in 2013, has come to define the economic agenda of President Xi Jinping. It aims to revive ancient Silk Road trading routes with a network of ports, roads and railways.