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Analysis: Flogging an IPO to death

By Paul Mackintosh  
Oct 30, 2019

News that Saudi Arabia has delayed the planned initial public offering of state-owned oil and gas company Saudi Aramco, ostensibly to boost the case for a high valuation with its third-quarter results, should surprise – or convince – no one. According to a Reuters report quoting unnamed sources, Aramco wants to use the results to allay concerns about production levels in the aftermath of the September 14 drone attacks on its Abqaiq and Khurais facilities.

At this point there is neither a firm date for the release of those results nor the listing. According to reports from AFP and other news outlets, it now depends on shareholder sentiment. Few expect it to happen much before next January or February.

Aramco’s announcement on October 3 that full output had been restored was touted as a confidence booster, but it seems to have gone nowhere towards bridging the gap between the target valuation and external estimates. A background of subdued oil prices hardly makes for peaky valuations; indeed, Aramco’s success in getting production back on track after the attack was part of the reason that prices have stayed low.

The Climate Accountability Institute rates Aramco as the world’s single largest producer of carbon dioxide emissions. Its list of the 20 worst offenders, which also include the national oil companies of Iran, Venezuela, Iraq, Abu Dhabi and Kuwait, is redolent of an era when global warming was hardly ever thought of. Yet, Aramco appears less to be trying to modernise its antiquated structure through the listing than to keep it alive.

Yes, the Saudis have large amounts of money to invest, and if the ruler of the absolute monarchy cajoles or simply tells them to invest in the Aramco IPO, they’re hardly in a position to refuse. But this isn’t likely to help the modernisation and diversification of the Saudi economy, which would do a great deal more for the national wellbeing than an overhyped and problematic IPO.