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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)
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.

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