Confident Al-Falih holds out hope for early Saudi Aramco IPO

Khalid Al-Falih: ‘When the Aramco-SABIC acquisition is consummated it will not only be the largest oil company and gas company, it will be a very large company in refining and petro-chemicals.’ (AFP)
Updated 25 April 2019
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Confident Al-Falih holds out hope for early Saudi Aramco IPO

  • Speaking at the Financial Sector Conference in Riyadh, Al-Falih said that preparations for a listing of Aramco shares — an initial public offering (IPO) — could happen ‘sooner than you think’
  • The listing has been slated for 2021 according to government and company announcements, but Al-Falih’s comments raise the possibility that it could be brought forward to next year

RIYADH: Khalid Al-Falih, the Kingdom’s energy minister and chairman of Saudi Aramco, held out the tantalizing prospect that the giant oil company’s long-planned stock market listing could happen ahead of the previously announced schedule.
Speaking at the Financial Sector Conference in Riyadh, Al-Falih said that preparations for a listing of Aramco shares — an initial public offering (IPO) — could happen “sooner than you think” and that a prospectus for the listing could come “in the not too distant future.”
The listing has been slated for 2021 according to government and company announcements, but Al-Falih’s comments raise the possibility that it could be brought forward to next year, though the minister added the caveat that it could also be later. “That’s the announced date but it could slip a little bit, it could come forward a little bit,” he said.
The successful completion of a $12 billion international bond by Aramco, which attracted more than eight times that amount in interest from investors, has given Aramco a new confidence in international capital markets, in equity as well as bonds.
Al-Falih also said that the intended acquisition of petrochemicals giant SABIC from the Public Investment Fund would also increase its capital-raising ability.
“When the Aramco-SABIC acquisition is consummated — we hope by the end of this year — it will not only be the largest oil company and gas company by a large margin, but also with the combined company will be a very large company in refining and petrochemicals. So its capital base is going to grow and I think right that its balance sheet has an appropriate level of debt.
“Even if Saudi Aramco stays at the lower end of gearing among its peers, it still has the capacity to offer a lot of debt instruments going forward. So I can tell you for sure that the $12 billion is only the beginning, not the end. It establishes Aramco’s presence in the market,” he added.

 

Al-Falih also indicated that the large amount of disclosure required for the bond issue would be used in the IPO preparation.
“Now that the company has been exposed, investors have reacted so enthusiastically to the company and its quality. We’ve seen the reserves, we’ve seen the financials, we’ve seen the quality in terms of its departmental performance and its safety performance, human capital capability and technology, all of this is appealing.
“It’s been exposed and documented in the prospectus for the bonds and it will be exposed even more in the equity prospectus to come in the not-too-distant future.”
Al-Falih made it clear, however, that the IPO had to await full completion of the merger with SABIC: “Once we’ve done that, the financials are consolidated and exposed to the investors, essentially all the practical steps for
the IPO have been taken both by the company and by the government. So I think we can hit the ground running once we close on SABIC.”
He added that he hoped for speedy approval from regulators for the merger. Finance experts at the conference said that Al-Falih’s comments showed that Aramco and the Saudi government were committed to listing the company, but were skeptical over whether the IPO could happen next year, given the need for full incorporation of SABIC.
“Given the express desire to complete the SABIC deal, it will be challenging to accelerate the time line of the IPO before 2021,” Jamal Al-Kishi, chief executive of Deutsche Bank in the Middle East and Africa, told Arab News. “But I have very little doubt the company will be floated,” he added.
Tarek Fadlallah, chief executive officer of Nomura Asset Management in the region, said: “It seems unlikely that it can take place in 2020 because they’ll want to demonstrate a full year of integration and collaboration with SABIC.”

FASTFACTS

The completion of a $12 billion international bond by Aramco has given it a new confidence in global capital markets.


Oil prices drop on swelling US stockpiles, but markets remain tense

Updated 11 min 38 sec ago
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Oil prices drop on swelling US stockpiles, but markets remain tense

  • US crude stockpiles rose by 2.4 million barrels last week, to 480.2 million barrels
  • US bank Morgan Stanley said it expected Brent prices to trade in a $75-$80 per barrel range in the second half of this year

SINGAPORE: Oil prices fell on Wednesday after industry data showed an increase in US crude inventories and as Saudi Arabia pledged to keep markets balanced.
However, analysts said oil markets remained tight amid supply cuts led by producer group OPEC and as political tension escalates in the Middle East.
Brent crude futures were down 39 cents, or 0.5 percent, at $71.79 a barrel by 0658 GMT.
US West Texas Intermediate (WTI) crude futures for July delivery were down 59 cents, or 0.9 percent, at $62.54. The June contract expired on Tuesday, settling at $62.99 a barrel, down 11 cents.
The American Petroleum Institute (API) said on Tuesday that US crude stockpiles rose by 2.4 million barrels last week, to 480.2 million barrels, compared with analyst expectations for a decrease of 599,000 barrels.
Official data from the US Energy Information Administration’s oil stockpiles report is due later on Wednesday.
Outside the United States, Saudi Arabia on Wednesday said it was committed to a balanced and sustainable oil market.
Saudi Arabia has been at the forefront of supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), of which the kingdom is the de-facto leader, that began in January and are aimed at reducing global oversupply.
Because of the cuts, Bank of America Merrill Lynch said crude output by OPEC and its allies fell by 2.3 million barrels per day (bpd) between November 2018 and April 2019. That has helped push up Brent crude prices by more than a third since the start of the year.
The bank said some of the impact of the cuts was offset by a slowdown in global oil demand growth due to trade tensions to just 0.7 million bpd in the fourth quarter of 2018 and the first quarter of this year, versus a five-year average of 1.5 million bpd.
Despite the slowdown, US bank Morgan Stanley said it expected Brent prices to trade in a $75-$80 per barrel range in the second half of this year, pushed up by tight supply and demand fundamentals.
The physical oil market is also showing signs of tightness.
Qatar Petroleum has sold Al-Shaheen July delivery crude at the highest average premium since 2013 — $3.06 per barrel above the benchmark Dubai quote — on robust demand for medium-heavy grades in Asia, according to multiple trade sources.
Beyond market fundamentals, oil traders are looking to the tensions between the United States and Iran.
US President Donald Trump on Monday threatened Iran with “great force” if it attacked US interests in the Middle East.
On Tuesday, acting US Defense Secretary Patrick Shanahan said threats from Iran remained high.
Tensions have risen since Trump re-imposed sanctions on Iranian oil exports to try to strangle the country’s economy and force Tehran to halt its nuclear program.