For biggest IPO, Saudi Aramco might have to give up on secrecy

Saudi Arabia has often been a place of mysteries and intrigue, and its promised initial public offering of the kingdom’s crown jewel — the national oil company Saudi Aramco — is only the latest puzzle.
 
As investment bankers and Saudi officials plan the trading debut, there are more questions than answers: Is the company worth $2 trillion, as the Saudis insist, or a small fraction of that, as argued by bankers and international oil experts? Will members of the royal family, with their secret oil payments, allow the kind of transparency that investors are demanding? Can the Saudis pull this off by late next year, as promised, especially if oil prices decline again or tensions heighten around the Persian Gulf?
 
Khalid A al-Falih, Saudi Arabia’s energy minister and chairman of Saudi Aramco, brushed aside many of those concerns before global energy executives here on Tuesday, seeking to build confidence that the Saudi Aramco offering would be the richest ever.
 
“The process is proceeding on time, on schedule, everything is green,” Falih said at CERAWeek, an annual industry conference. “It will be a great addition to many portfolios. And it will unleash the company to do more globally.”
 
But not all energy experts are so sure the offering will go smoothly, although investment bankers and Saudi officials alike have plenty of incentives to make it a success.
 
As a prize, there are fewer bigger than Saudi Aramco. The Saudis plan to offer 5 per cent of the company, which could raise $20 billion to $100 billion, depending on a company valuation still to be determined.
 
The Saudis insist on the higher values based on the country’s 266 billion barrels of oil reserves, roughly 15 per cent of total global supplies, which they say provide the company with a total valuation of $2 trillion. The bankers, however, are relying on other calculations, based on various analyses of operations, costs and projections of future commodity prices. The consultants at Wood Mackenzie figure a valuation of roughly $400 billion.
 
The biggest banks, including JPMorgan Chase, Morgan Stanley and HSBC, are positioning themselves by advising the Saudis on how to structure the offering.
 
But investment bankers say the value of the company can be determined only after the Saudi government outlines the minority protections that investors will have, what taxes they will have to pay, and what Saudi Aramco’s cost structure will be.
 
In pursuit of higher valuation 

• The Saudis insist on the higher values based on the country’s266 billion barrels of oil reserves, which will  provide the company with a valuation of $2 trillion
• The bankers are relying on calculations based on various analyses of operations costs and projections of future commodity prices
• The consultants at Wood Mackenzie figure a valuation of roughly $400 bn
• Investment bankers say the value of the company can be determined only after the Saudi government outlines the minority protections that investors will have 

©2017 The New York Times News Service