INTERVIEW: Amin Nasser, Saudi Aramco’s Davos man, spells out blueprint for IPO

Amin Nasser, the president and CEO of Saudi Aramco, had a busy few days at last week’s World Economic Forum (WEF) annual meeting in Davos. (Illustration: Luis Grañena)
Updated 27 January 2019
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INTERVIEW: Amin Nasser, Saudi Aramco’s Davos man, spells out blueprint for IPO

  • Nasser was speaking in a private meeting salon at the Hotel Grischa near the main railway station of Davos
  • Just a few weeks ago, Aramco announced the results of an audit by DeGolyer & MacNaughton, the leading independent expert on the oil industry

DAVOS: Amin Nasser, the president and CEO of Saudi Aramco, had a busy few days at last week’s World Economic Forum (WEF) annual meeting in Davos.

“We had about six hours at the International Business Council, three hours at the oil and gas community, two hours on the climate change initiative — and then about 40 bilateral meetings. In Davos, you make every minute count,” he said.

Nasser was speaking in a private meeting salon at the Hotel Grischa near the main railway station of the Swiss Alpine town. He had a plane to catch, but spent some of his precious remaining minutes at Davos speaking to Arab News — about the Fourth Industrial Revolution, technology, the environment, carbon emissions and sustainability.

But first we talked about the forthcoming initial public offering (IPO) of Saudi Aramco. The planned stock exchange listing of the world’s biggest oil company and the Kingdom’s economic dynamo had been slated for later this year, but that timetable slipped into 2021, as Nasser explained.

Did he feel any sense of disappointment or anticlimax that the IPO had been delayed? “No. What I have to say about the IPO is that a lot of work has been done and the commitment is definitely there. The proof of that is what has already been done by the government and by the company. We have changed the tax rules, made a new concession agreement, changed Aramco into a joint stock company, and introduced a lot of fiscal reforms to facilitate a listing,” he said.

Just a few weeks ago, Aramco announced the results of an audit by DeGolyer & MacNaughton, the leading independent expert on the oil industry, which showed Aramco is sitting on a treasure trove of 263.1 billion barrels of oil within its concession area, higher than previous estimates. That was one of the essential requirements for the IPO.

“Everything that is required for listing is there. If the government decided, it could be done in no time,” he said. So why had it not happened?

Basically, Nasser explained, because an alternative strategic play came into view. Aramco decided there were more pressing priorities, especially a tie-up with SABIC, the Kingdom’s petrochemicals and industrial giant.

“We came to the government and said that our desire is to be the leading petrochemical company globally. We can do that organically or inorganically. We are always looking for opportunities in this field and we have huge investments in petrochem with Dow Chemical and Sumitomo. However, if you want to be the leader, you need an acquisition, a major acquisition. You need a platform, a good platform so you can go global, especially with our decision to have 2 million to 3 million barrels of oil going to petrochemical.

“So we approached the Public Investment Fund (Saudi Arabia’s ambitious sovereign wealth fund) to see if it was interested in selling their shares in SABIC, and they were interested. We have been in discussions with them and we went back to the government and said … based on our governance requirements and regulations, you cannot list Aramco while we are going through a major acquisition. It doesn’t work. That process needs to take its course, and the government said that’s fine. Because also you cannot list and then come in three or four months later and say you’re going to acquire a company. That would have to be in the IPO prospectus.

The deal with SABIC — which is valued in the region of $70 billion — will transform Aramco into a global petrochemicals giant, and will take time to put together.

“We need to close a share-purchase agreement and we’re in discussions now with PIF about that. When we reach an agreement we have to go and seek regulatory and antitrust approval. That will take almost until the end of the year 2019, or maybe a little bit more; we don’t know because you need approval from a lot of countries where SABIC has major operations. SABIC is not a small company, it’s a huge company, so you need a lot of approvals from lots of countries,” he said.

“After you finish that you need a minimum of one year to reflect the purchase in your balance sheet. It has to be consolidated and show what is the impact on our balance sheet — where is the integration, where is the value, because the investors will want to see … After that you can go to the market,” he said.

“It’s going to happen. There is no doubt the commitment is there, and it was also further confirmed by the Crown Prince Mohammed bin Salman and by the Minister of Energy Khalid Al-Falih. Both of them say the commitment for the IPO is there,” he insisted.

But Nasser admitted the issue is how to fund the SABIC acquisition, which will be the biggest takeover ever in the Middle East.

“We have different funding mechanisms to finance it. We have our cashflow, and also other funding mechanisms like the bond market, and other tools that are needed for a sustained capital program. So all of these financial tools will be utilized as soon as we reach an agreement,” he said, without disclosing the amount of the bond issue. It will be Aramco’s first foray into global debt markets, but Nasser was encouraged by the recent enthusiastic response toa $7.5 billion bond the Kingdom raised.

The upcoming Aramco bond will take place amid market conditions that were the subject of much gloomy prognosis in Davos. The thought-leaders at the WEF see turbulence in global economic and financial markets in 2019, and worry about the trade “war” between the US and China, and other global economic disruptions.

The implications for the oil markets are obvious. An economic slowdown in China and other big economies would sap the appetite for oil and gas, and potentially lead to a price fall for the Kingdom’s most precious asset.

However, based on his conversations in Davos, Nasser did not appear over-concerned about global economic forecasts.

“It’s our view that the market, in terms of global inventories, is moving toward staying within the five-year average. That’s a sign of balanced-out tightness of supply and demand, which is very important. We are optimistic about the market in 2019 in terms of pricing and in terms of tightness of supply-demand. The more it is balanced, the better for the market. And our view is that there is still healthy demand,” he said. He reckoned there was only a 15 percent chance of a global recession in 2019.

“So far China is healthy in terms of demand, as reflected in imports from Saudi Aramco, and it has been growing. Asia in general is a major market — it is the epicenter of demand in terms of global energy right now, and there is a lot of growth. China and India are very important for us,” he said.

So that leaves the way clear for Aramco to get on with its core long-term strategy — to be a global leader in oil, gas, petrochemicals, refining and energy trading — as well as a pioneer in energy technology.

Aramco is already one of the dominant forces in the global oil industry, of course, helping to set the price of crude through its supply deals with other oil producers. But its immediate ambitions are in gas, where it has so far played a lower-profile role globally. Nasser wants to change that, especially in terms of domestic Saudi consumption.

“By 2030, 75 percent of the utilities sector (in the Kingdom) will be on gas, and the rest will be renewable and nuclear alternatives. So we will have gas going outside the Kingdom to export markets, either by pipeline or by LNG. So (we) will be exporters for the first time,” he said.

Aramco is looking at potential deals in the international gas business, with potential partners in Russia, the US and Australia, he said, adding: “We will be a global leader in gas from within the Kingdom, but we are also looking to be a major player globally.”He is also said to be considering acquisitions in the US shale gas industry. “We have no interest in shale oil ... we have plenty of conventional oil at a much lower cost. But we are interested in gas, let me put it that way,” he said.

At Davos, one of the major themes was the challenge posed by climate change, and Nasser was keen to point out that Aramco is among the “best in class” of the big energy groups. He welcomed a recent academic study that classed Saudi Arabia as the second best in the world among energy producers for carbon intensity in upstream emissions, second only to energy minnow Denmark and way ahead of the other big producers, the US and Russia.

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MORE ARAMCO NEWS FROM DAVOS

Saudi Aramco’s Amin Nasser warms the night in glittering Davos reception

Saudi Aramco chief sets out roadmap for share sale in 2021

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Technology is key to Aramco’s future as a clean energy company. While at Davos, the company was recognized as a technology leader for its gas plant at Uthmaniya, the only energy producer in the world to receive the WEF’s “Lighthouse” award for technology innovation.
“Aramco is already in the era of the Fourth Industrial Revolution,” Nasser said.

The company is investing heavily in technology across 12 centers globally, each looking at aspects of innovation in energy conservation, fuel formulation, engine technology, and carbon capture.

Nasser sees a big role for alternative and renewable energy sources, but thinks that the challenge to the traditional energy business from the electric vehicle industry has been overstated.

He pointed out that there were only 5 million electric vehicles (EV) in the world today, which roughly amounted to the displacement of just 50,000 barrels of oil out of a total global consumption of 100 million barrels. Many of those EVs are, of course, running on power generated by the highly polluting coal industry.

“You do the math. Our view on EV is that it will continue to grow and it will be a great growth story. However, we firmly believe that by 2040 we will need to use all sources as part of the energy mix to supply the world.”

By then, if all goes to the strategy set out by Nasser and the Saudi energy minister, who is also chairman of Aramco, the world’s leading oil company will be a public-listed corporation, a global leader in the energy industry and a champion of digital industrial technology. But Nasser insisted it would remain true to its roots as the fountain of the Kingdom’s fortunes.

“We try to make sure that, wherever you operate, you add value to the community that you are in. There is a lot of emphasis on taking care of all our stakeholders, as well as our shareholders,” he said.


Head of Saudi Arabia’s SRC: ‘Ask banks for a mortgage, and we will refinance it’

Updated 25 April 2019
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Head of Saudi Arabia’s SRC: ‘Ask banks for a mortgage, and we will refinance it’

  • SRC CEO Fabrice Susini: One of our key objectives is to ensure that the banks are extending loans to more and more people
  • Extending home-ownership is one of the cornerstones of the Vision 2030 strategy to diversify the economy away from oil production

RIYADH: The head of the state-owned Saudi Real Estate Refinance Company (SRC) has made an unprecedented offer to the Kingdom’s home-seekers to underwrite future mortgages.
Speaking at the Financial Sector Conference in Riyadh, Fabrice Susini, SRC CEO, told the audience: “Ask them (the banks) for a mortgage, and we will refinance it.”
Although Susini later clarified his remarks to show that he still expected normal standards of mortgage applications to be met, the on-stage show of bravado illustrates SRC’s commitment to facilitate home-ownership in the Kingdom.
“Obviously if you have no revenue, no income, poor credit history, that will not apply. Now if you have a job, it is different. We have people in senior positions at big foreign banks that could not get a mortgage,” he explained.
He said that Saudi banks have traditionally assessed mortgages on the basis of “flow stability” of earnings. Government employees, or those of big corporations like Saudi Aramco and SABIC, found it easy to get mortgages “because you were there for life.”
“One of our key objectives is to ensure that the banks are extending loans to more and more people. The government is pushing for entrepreneurship, private development, private jobs. If you work in the private sector and cannot get a mortgage the next thing you will do is go to the government for a job,” Susini said.
Extending home-ownership is one of the cornerstones of the Vision 2030 strategy to diversify the economy away from oil production. Saudi Arabia has one of the lowest rates of mortgage penetration of any G20 country — in single digit percentages, compared with others at up to 50 percent.