Was Aramco listing delayed to rope in anchor investors?

Oil giant Saudi Aramco’s much-vaunted stock market listing was delayed after deal advisers said they need more time to lock in cornerstone investors, three sources with direct knowledge of the matter told Reuters news agency.

After a false start last year, preparations gathered momentum this summer with approaches to sovereign wealth funds, rich Saudis, and large foreign fund managers as potential cornerstone investors – only for plans to unravel a second time.

The world’s biggest oil company had been expected last week to launch the domestic sale of a one to two percent stake, but the signing up of marquee backers has been hampered by continuing valuation concerns exacerbated by September attacks on Aramco’s Abqaiq and Khurais plants.

Aramco was unable to answer valuation questions fully during initial talks with investors, said one institutional investor from the Gulf region who has been involved in the discussions.

Sovereign funds in the oil-rich Gulf region typically shy away from energy exposure, he added, noting they are usually looking to diversify their investment portfolios.

Two of the sources said a Saudi Arabia government committee overseeing the planned Aramco flotation had therefore recommended to Crown Prince Mohammed bin Salman (MBS) last Wednesday that the launch of an initial public offering (IPO) scheduled for October 20 be postponed.

Yasir al-Rumayyan, chief of the Public Investment Fund of Saudia Arabia (PIF, the country’s sovereign wealth fund), heads the committee, which includes senior Saudi officials, sources said. Al-Rumayyan is also the newly appointed chairman of Aramco.

Aramco declined to comment, and the Saudi government media office did not respond to a Reuters request for comment.

MBS, the kingdom’s de facto ruler, has made the Aramco IPO a pillar of an ambitious economic reform drive. He wants the company to be valued at about $2 trillion, though bankers and company insiders put the value closer to $1.5 trillion.

Banks involved in the offering received news of the delay on Thursday evening. An email from top advisers said that a call with bankers on Friday to discuss a strategy to secure investors was cancelled, as was the Sunday launch, said one banker who saw the email.

The rationale was that third-quarter results, which one of the sources said could come before the end of October, would bolster investor confidence after the September 14 attacks initially halved Aramco’s output and shook oil markets.

Anchor investors

Talks have taken place with the Abu Dhabi Investment Authority, Singapore’s GIC Private Limited and other funds, sources have told Reuters.

Al-Rumayyan is pushing banks to achieve the top valuation, said a fourth source familiar with the IPO plan.

Anchor, or cornerstone, investors such as sovereign wealth funds are considered key to secure demand. In 2016, the state-owned Postal Savings Bank of China sold 77 percent of its $7.4bn IPO to such backers.

“They [Aramco] will want anchor investors to cover no less than 40 percent of the offering. Anything below that won’t be enough,” said one of the three sources close to the deal.

The latest delay in the plan to hold what could be one of the world’s largest public offerings – potentially raising upwards of $20bn from the sale of five percent of Aramco in total – has revived debate on whether Saudi Arabia can ever realise its valuation target given moribund oil prices.

“The current oil price environment is not favourable for the $2 trillion target,” said Steffen Hertog, associate professor at the London School of Economics.

“Aramco expects the oil market to recover over the coming few years. Another longer delay would, however, test the patience of the market; the optics would not be ideal.”