Saudi Arabia is considering whether to sell shares in state oil giant Saudi Aramco as part of a privatisation drive to raise money in an era of cheap oil.
“Personally I’m enthusiastic about this step,” Prince Mohammad Bin Salman Bin Abdulaziz, Deputy Crown Prince, Second Deputy Premier and Minister of Defence of Saudi Arabia, told The Economist magazine in an interview published on Thursday. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.”
The kingdom plans to decide within the ‘next few months’ whether to float shares of Saudi Aramco, Prince Mohammad told The Economist, in a sale that can possibly become the ‘biggest of the century’, analysts say.
Aramco is the world’s largest oil firm with crude reserves of about 265bn barrels, over 15% of all global oil deposits. If it goes public, it could become the first listed company valued at $1tn or more, analysts have estimated.
The news of an Initial Public Offering (IPO) of Saudi Aramco’s shares was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East. They asked not to be identified.
Saudi Aramco produces all of Saudi Arabia’s crude oil, which reached 10.25mn barrels per day in December. The state oil giant holds more than ten times more oil and gas reserves than ExxonMobil Corp., the largest private oil company.
Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said. An IPO of the entire enterprise had only ever been discussed as a joke, one of the people said.
The company could be worth anything from $1tn to upwards of $10tn, which would make it the most valuable company in the world, according to a note from Jason Tuvey at research firm Capital Economics.
The last mega IPO from the oil industry was a decade ago, when Russia’s OAO Rosneft raised more than $10bn.
Even if Saudi Arabia sells a small stake, a listing could easily surpass that of Alibaba Group Holding Ltd. whose $25bn IPO is the largest on record.
Still, Aramco is unlikely to list on the biggest exchanges, according to Bloomberg oil strategist Julian Lee.
That would require the government to give investors more detailed information about Aramco’s reserves and production capacity, something oil-producing nations consider state secrets, he said.
Saudi Arabia typically sells stakes in state-owned companies to the public at below market value as part of its efforts to redistribute wealth. National Commercial Bank raised $6bn in 2014 in the Middle East’s largest share sale.
Facing the possibility of a record-breaking IPO, bankers are fielding frantic phone calls from head offices asking why they didn’t know this was coming and are figuring out how serious Prince Salman is, two of the people said.
Earlier, the OPEC kingpin posted a record $98bn budget deficit in 2015 due to the sharp fall in oil prices, the finance ministry said yesterday.
Revenues were estimated at $162bn, well below projections and 2014 income, while spending came in at $260bn, ministry officials announced at a press conference in capital Riyadh.
The budget deficit is the highest in the history of Saudi Arabia, the world’s largest oil exporter, but was not as big as some expected. The country projects $87bn in deficit for 2016.
The International Monetary Fund (IMF) had projected the Kingdom’s 2015 fiscal deficit to be around $130bn and other reports also put it above $100bn.
The kingdom has seen a sharp drop in revenues as oil prices have fallen by more than 60% since mid-2014 to below $40 a barrel.
The Saudi government hiked prices for fuels, water and electricity as well as gas feedstock used by industry, as part of subsidy reforms designed to help state finances cope with low oil prices.
