Although the increased chatter surrounding Saudi Aramco’s IPO plans is exciting, what is needed is more clarity surrounding the motivation for recent personnel changes, and future thinking regarding energy policy and the Aramco strategy from key decision makers. What investors and potential investors dislike is uncertainty.


Rapid changes at the top indicate new direction for Saudi’s energy sector, but what?

The run up to the OPEC meeting later this week has been an exciting one for what is arguably the group’s most prominent and important member – Saudi Arabia. The Gulf state will be sending a new negotiator to the meetings, Prince Abdulaziz bin Salman (AbS), who was appointed Minister of Energy earlier this week, and is the first member of the royal family to so firmly and officially hold the reins of the kingdom’s oil policy.

The appointment of AbS capped off a series of developments which appear designed to remove the influence of former energy stalwart Khalid Al Falih (KaF) on Saudi Arabia’s energy sector, as well as instil some momentum into stalled policy initiatives in the industrial and mining sectors through splitting up the Ministry of Energy, Industry and Mineral Resources (MEIM).

Despite official explanations pointing to the pragmatic elements of these developments, widespread speculation surrounding the changes continues. Much of this relates to the rationale behind appointing AbS now and not earlier, considering that he was deputy minister back in 2016, when his long-time colleague and superior Ali Al Naimi left office and KaF took on MEIM, then newly formed.

As such, it seems more probable that AbS has been picked as a compromise brokered by King Salman, and that as energy minister AbS will be tasked with opening the door to the policies central to Vision 2030 that were held back by KaF – above all Saudi Aramco’s IPO. On the one hand, AbS’s credentials are strong enough to alleviate concerns about a mere power consolidation pact by the royals. On the other, he is the half-brother of Crown Prince Mohammed bin Salman (MbS). AbS’s appointment means MbS can deal with policy disagreements within the family and emphasise the role of non-oil investments more energetically.

Appointing royals to important roles is not uncommon in the kingdom, and the crown prince increasingly enjoys the presence of acquiescing relatives in key positions which he can supervise. This year only, two of Bandar bin Sultan Al Saud’s children were appointed as ambassadors in the UK and the US, where Saudi Arabia is under growing political pressure. Nonetheless, the appointment of a close relative of MbS to one of the most prominent roles in government, traditionally ring-fenced from court politics, is uncharted territory.

Going forwards, AbS will be focused on the task of getting the new ministry up and running, directing investments into new energy ventures and maintaining supply cuts within OPEC+. Although lukewarm to the prospect of an initial public offering (IPO) for Saudi Aramco, AbS is seen as a pragmatic and diplomatic figure, able to understand the role Aramco’s IPO will play in realising Saudi Arabia’s economic growth strategy. His success will probably depend upon his ability to stay clear from confrontation with his younger half-brother and play a more traditional and restricted role as minister.

This will allow Aramco’s new chairman, Yasir Al Rumayyan, to fast-track the IPO and satisfy the crown prince’s desire to start floating shares to raise capital, which can be reinvested in an increasingly fragile economy and wean the kingdom off its dependency on hydrocarbons for state revenues.


IPO Watch: What does the shakeup mean for the Saudi Aramco listing?

Scenario one: Push ahead with IPO as planned, in 2020 or even earlier (November 2019), but domestic listing may have to suffice for now

Plans for an IPO remain firmly on the table, despite the unlikelihood of a $2trn valuation of the company, initially floated by MbS. The key would be to obtain the best possible valuation based on stable oil prices. Forecasts suggest sustained downward pressure on global oil prices, with slowing demand and continued US-China trade tensions as key issues weighing on the price. Some forecasts put 2020 oil prices at $55 per barrel, which would diminish Saudi Aramco’s valuation even further.

Therefore, if the experience of AbS can be leveraged to maintain the agreed production cuts among the OPEC+ states – something the Saudis can domestically control – then the pressure on oil prices may well ease sufficiently enough to proceed with the IPO. Aramco’s new chairman, Al Rumayyan – more a seasoned financier than an energy veteran, and a close confidant of the crown prince – will be the kingpin in making MbS’s IPO plans a reality.

The most likely scenario will be a domestic listing on the Tadawul All Share Index as a first step. A flurry of recent news reports suggests that arranging banks are close to being appointed and wealthy Saudi families have been approached to act as anchor investors to help prop up trading values once Aramco debuts. Earlier this month, US-based BlackRock, the world’s largest fund manager, opened its first Saudi office, in Riyadh, hoping to capitalise on delivery of the reform agenda.


Scenario two: Hold off on international listing; seek other ways to raise capital

The crown prince has made no secret of the fact he would like to see Aramco listed on a prominent international exchange. Insiders say many of the recent changes are in preparation to comply with regulatory and legal requirements in certain countries prior to a listing. However, listing Aramco on the New York Stock Exchange (NYSE) would likely be resisted internally and open up Aramco to unwanted legal and political scrutiny in the US, despite company efforts to promote its independent executive structure. The fact remains that Aramco is a 100% directly government-owned company.

Would Saudi Arabia want to list elsewhere and risk alienating US President Donald Trump? And would a non-Trump, Democrat president be receptive to a major Saudi listing on the NYSE? These questions indicate that the government may well wait for its international listing until after the presidential elections in 2020. Tokyo or another Asian exchange has been floated as the most likely global listing, should it come to it.

In the meantime, Aramco could tap global bond markets again. The company sold $12bn in bonds earlier this year amid demand which ballooned to more than $100bn, allowing it to achieve favourable pricing. Global appetite for Gulf debt remains strong and another bond issue would likely be well-received.

Another option the company could explore is an equity sale to private international investors, or a consortium of investors, possibly in exchange for a seat on the company board or another “perk”.


By Rachna Uppal and Daniel Moshashai. Rachna is the Financial Markets Analyst at Castlereagh Associates and specialises in the Gulf region. Daniel is the Regional Analyst at Castlereagh Associates and focuses on Iran, the GCC, economic diversification in national agendas and geopolitics in the Middle East.