The delay in announcing an international venue for the world's biggest initial public offer (IPO) may not be accidental. The international stock exchange for Saudi Aramco's IPO was supposed to be revealed by the end of last year for the IPO to go ahead this year, but there has been no word about it yet.
Instead, the only signs that the IPO will take place have been domestic: last week, the Saudi Arabian stock exchange, the Tadawul, announced a series of measures to ease foreign investors' access and to widen the range of foreign institutional investors that are eligible to invest there. And at the beginning of this year, the Saudi government changed the status of Aramco to that of a joint stock company -- a condition necessary for its IPO.
These steps do suggest the IPO will go ahead, domestically. Regarding the international IPO, uncertainty over when, where or even whether it will happen is rising. I still believe the Tokyo Stock Exchange would be the ideal choice for it if it does go ahead, for the reasons I outlined in an earlier article.
A report by Reuters on Jan. 11 quoting two sources familiar with the discussions taking place in Saudi Arabia said only Hong Kong, New York and London had been shortlisted for the foreign IPO. But Bloomberg on Thursday Jan. 18 quoted the CEO of Aramco, Amin Nasser, as saying there is no such shortlist.
Also on Thursday, according to a report by Arabian Business, Nasser injected a bit more uncertainty about the international IPO, telling reporters at the company's headquarters that, while the company is ready for listing this year, "we want to see if there is going to be a listing in another market (besides the Tadawul). There is a committee that is formed that looks into it and whenever the decision is taken the company is ready to implement."
The IPO is part of plans by Crown Prince Mohammed bin Salman, Saudi Arabia's de facto ruler, to reduce his country's dependence on oil and to diversify its economy. He has estimated the value of Aramco at $2.0 trillion, which would mean the listing of a 5% stake would bring as much as $100 billion to the state coffers.
For such a huge IPO it would make sense, in fact, to do it in stages, starting with the Tadawul. Listing it domestically first would allow the government to identify and iron out any potential creases -- like, for example, deal with investor reactions to figures or performance on a smaller, easier to control scale.
Although the biggest oil company in the world, relatively little is known about Aramco's financial performance. Following the public listing, the company will have to disclose a lot of information about how much money it makes, its levels of debt, its profitability and cash flows.
The share price will move with every announcement, which is something Aramco's management and the government will need to get used to. There will need to be much more transparency and even then, the company's share price will be influenced by scores of apparently unrelated factors, ranging from moves in the price of oil to regional or global political issues.
For any emerging market looking to diversify, a huge domestic IPO of its main national champion would be enough to keep it busy for a while. Saudi Arabia would be wise to wait with Aramco's international IPO until it is sure the domestic listing has gone smoothly. Perhaps officials will be coming around to that conclusion themselves.