Saudi Aramco IPO is mission impossible

Saudi Aramco’s IPO looks doomed to failure as it targets a $2 trillion flotation. Tepid oil prices, the fraught politics of the Middle East and the demonization of fossil fuel producers in response to climate change fears have all made the initial public offering (IPO) a mission impossible.

The kingdom had looked poised to list up to 2% of its shares on its domestic market within weeks. But the long-delayed partial privatization of the world’s largest state-owned oil company now faces another indefinite postponement after the devastating attacks last month on some of its most important facilities at Abqaiq and Khurais in the Eastern Province of Saudi Arabia.

Overnight, the attacks shut down 5.7 million barrels per day of Saudi Arabia’s oil production, roughly equivalent to 6% of global supply. A catastrophic spike in oil prices was only narrowly avoided because of the kingdom’s own emergency stockpiles, and its swift response in patching up the damage and restoring output in record time. But this has come at a high price to Aramco, which potential investors will want to see accounted for before paying any kind of premium for its shares in an IPO.

It is a level of detail which the normally secretive Aramco is probably uncomfortable to reveal. In August, Aramco for the first time gave potential investors a glimpse of its first-half earnings. Net income of almost $50 billion made it comfortably the world’s most profitable company. However, the cost of repairs at Abqaiq and the inconvenience caused by the attacks will be an ugly blemish on its otherwise pristine balance sheet.

source: S&P Global