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Planned Aramco IPO on hold

Saudi Arabia has denied reports that the partial privatisation of Aramco has been cancelled—but hasn’t said when it will happen

For weeks there has been speculation that the planned initial public offering of the century wouldn't, after all, go ahead.

The idea of selling off 5% of the kingdom's energy giant, Saudi Aramco, was made public in April 2016. That was when Crown Prince Mohammed bin Salman unveiled Vision 2030, an ambitious strategy to wean the country off oil. The Aramco IPO was a key plank in this. The crown prince reckoned that Aramco would be valued at $2 trillion or more, and that the IPO would raise more than $100bn for the sovereign wealth fund.

Commentators and analysts questioned whether the figures involved were realistic, and whether the IPO would proceed the way it was being envisaged. No decision on a location for the offering was made. As the months passed with no further announcements, it became clear that the initial target date of 2018 wouldn't be met.

When Reuters on August 22 reported that the IPO idea had been scrapped, the government was forced to respond publicly. Energy Minister Khalid al-Falih released a statement denying the news agency report and saying the kingdom remained "committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum".

He added that the timing would depend on "multiple factors, including favourable market conditions, and a downstream acquisition which the company will pursue in the next few months"—a reference to Aramco's plan to acquire a majority stake in Sabic, the kingdom's leading petrochemical firm.

Falih added that a range of measures had been put in place, ready for the day the IPO happens. When that might be is impossible to say. Certainly not, as Falih made clear, before the takeover of Sabic is complete—and that could be many months away. For now, the planned IPO is on indefinite hold.

If, in the end, the kingdom decides not to go ahead with the partial sale of Aramco, then it will need to arrange more sovereign bond issues to raise the cash needed to finance the massive economic reform programme. The more that Saudi Arabia resorts to raising finance in this way, the greater will be the speculation that the IPO isn't going to happen.

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