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Saudi Aramco delays planned launch of long-awaited IPO

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Via Financial Times

Saudi Aramco has postponed the launch of its long-awaited initial public offering, due on Sunday, three people familiar with the matter said, putting the planned November flotation in jeopardy.

One of these people said the company wanted to wait until it could provide investors clarity on its most recent quarterly earnings after attacks on Saudi infrastructure last month that temporarily halved production.

The listing, which is central to Crown Prince Mohammed bin Salman’s ambitious economic reform plans, has been dogged by delays and doubts over whether it can achieve a $2tn valuation desired by the kingdom’s heir apparent.

The government was expected to sign off on a domestic listing for Saudi Aramco this week. A board meeting was due to follow before the company announced its formal intention to float on October 20 in Dhahran where the company is headquartered.

The person said the results will show that Saudi Aramco — which is the world’s most profitable company — did not suffer a material financial hit, adding that there was no set timeframe for the announcement.

A second person briefed on the matter said the announcement had been “delayed but not been pulled”, while a third person said it had been postponed by “weeks”.

The state-owned oil group said on Thursday evening: “The company continues to engage with the shareholders on IPO readiness activities. The company is ready and timing will depend on market conditions and be at a time of the shareholders choosing.”

Saudi Aramco was expected to release its IPO prospectus next week ahead of a listing of up to 3 per cent of the company as early as November.

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Despite local bankers pointing to enthusiasm among retail investors in Saudi Arabia for the listing, it is unclear if Prince Mohammed will be able to secure his long coveted $2tn valuation amid doubts by potential foreign investors.

There are broad concerns about perceived state interference in Saudi Aramco’s corporate strategy alongside wider anxieties about the kingdom’s ability to protect Saudi energy assets.

Big merchant families — many of whom were ensnared in the 2017 corruption crackdown — are also being pressured to invest to ensure the success of the IPO.

During global investor meetings with fund managers in Asia and the US in recent weeks, Saudi Aramco received a tepid response to its proposition, bankers briefed on the interactions said.

One banker said Saudi Aramco had sought $1bn from institutions for an anchor investment stake for a deal that would float 1 to 2 per cent of the company at a valuation of $1.5tn- $2tn.

“Institutions are not interested at valuations higher than $1.2tn,” the banker said.

Sovereign wealth funds in the Middle East have also been tapped up for the prospective launch. While some are concerned about the valuation, they also concede that political imperatives to support the kingdom may trump any sceptical view of the company’s investment case. “This call to look at Aramco came from the higher-ups,” said another financier briefed on the discussions.

Saudi banks are also expected to lend heavily to Saudi investors so they can fund their share purchases. Banks are also setting up funds through which retail shareholders can buy into the offering to generate a bumper response.

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Riyadh has in recent weeks stepped up efforts to support a higher valuation for the company. Riyadh announced an annual dividend of $75bn, changed state royalty payments and scaled back long-term investment plans.

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