Related Articles
In depth
Forward article link
Share PDF with colleagues

Chopping up Saudi Aramco

Selling part of the state-owned firm will be just the start of a broad divestment project that turns the firm into a huge holding company

KHALID al-Hussan, chief executive of Tadawul, the Saudi stock exchange, could scarcely hide his excitement. “This is a moment of history for all,” he said from the podium of a conference in Riyadh in May. “We used to laugh and wonder out loud whether Aramco would ever be listed. Now we are realising this.”

The plan to sell off part of the kingdom’s energy firm is one of the most eye-catching parts of Riyadh’s new policy direction, encapsulated in Saudi Vision 2030. Crown Prince Mohammed bin Salman, explaining the strategy in a TV interview, said Aramco “is part of the key elements of this vision”. But it will be a very different Aramco from the one that Saudis know today.

An evaluation of the company is already being carried out. In the opinion of MbS, Aramco might be worth between $2 trillion and $3 trillion, implying a 5% stake fetching something like $125bn. The listing is planned for 2017 in the Saudi market, with the likelihood of shares being offered via a US fund based in New York handling only Aramco shares. Aramco will then become a holding company under the wing of the Public Investment Fund (PIF), which will handle the revenue from the IPO and invest it. In this way, according to the deputy crown prince, “the income of Saudi Arabia will be generated from investment instead of oil”, with the PIF becoming the world’s largest sovereign wealth fund. Aramco itself will move from being an oil company to a “global industrial conglomerate”, with oil and gas operations undertaken by its subsidiaries and joint ventures.

A sign of intent

Over an unspecified period, a second offering of Aramco shares will be made, followed by the sale of subsidiaries. Hussan says it is too early to say how many Aramco companies would be offered. “First, the mothership lands, with the sale of part of the head company. Then will come the multiple affiliates – full affiliates, joint ventures and so on. We are waiting to get all the details.”

“Its files and data are undeclared, unclear and untransparent. Today it will become transparent”

Tadawul, already by far the largest stock exchange in the Middle East, capitalised at $400bn, is poised for a huge expansion. Hussan estimates that by 2018, the Aramco IPO will have added a further $100bn to its capital. “This will elevate the Saudi capital market to a very advanced level, on a par with other major international players,” he added.

Arousing market interest in the partial sale of the world’s most successful national oil company operating in a country with the second largest reserves won’t be difficult. But for Saudis, the idea of a national institution being turned into a holding company may take time to sink in. Deputy crown prince Mohammed was asked by television interviewers if he was not concerned about making changes to a “sacred” body like Aramco. On the contrary, was his response, Aramco for too long had operated without transparency. “Its files and data are undeclared, unclear and untransparent. Today it will become transparent.” That development in itself will be another moment of history.

This article is part of an in-depth series on upstream in the Gulf. Next article: More and more Saudi oil.

Also in this section
Gazprom continues to aim high
11 October 2018
The towering ambition of Gazprom’s capex programme is matched only by the height of its controversial new St Petersburg headquarters
Nigeria's oil sector reforms edge closer to law
10 August 2018
The framework for investments in Nigeria may be about to change. But as ever, there are complications
US balancing act
7 August 2018
The majors are facing a capital spending conundrum sooner than many in the industry expected