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Doubts cast on Aramco IPO after Saudi oil attacks

Saudi Aramco might have to put its planned IPO on hold [Getty]

Date of publication: 17 September, 2019

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Saudi Arabia might have to put a much anticipated IPO of Aramco on hold after strikes on its oil infrastructure.

A much anticipated IPO of Saudi state energy giant Aramco might be put on hold after suspected drone attacks on the kingdom's oil infrastructure cast doubts on its value, analysts have said.

A series of suspected attacks on Aramco plants in eastern Saudi Arabia saw the highest surge in oil prices in 30 years following a massive disruption to production.

Aramco officials are said to be considering delaying the two-stage IPO due to the attacks, despite hints last week the oil giant was ready to float for floating part of the company on the stock market.

"The more information we are getting on the extent of the damage, the clearer it is becoming this is really serious and would take longer than anticipated to see things back to normal," an official said to be familiar with the matter told The Wall Street Journal.

"You cannot go ahead with an IPO without sorting out your production issues first."

An official told the financial daily that continued attacks on Aramco infrastructure could lead to a $300 billion discount due to disruptions in production.

Saturday morning's attacks wiped 5.7 million barrels of oil a day off the market - 5 percent of global oil production.

"The most natural thing to happen is to see risk premiums rise which would lower the valuation," one of these officials said. 

"In the current valuation, Aramco does not count for serious attacks like these."

Analysts have also cast doubt on whether Riyadh might go ahead with the planned IPO of Saudi Aramco due to market and political uncertainties.

"Saturday's attacks raise the fear of future attacks in a very real way for equities investors," Ellen Wald, president of Transversal Consulting told CNBC.

"Those familiar with the company know that Aramco has been prepared for this for a very long time, but it likely is not something already priced into the opinions of the typical fund."

Saudi Aramco CEO Amin Nasser said last week that he was ready to push ahead with the IPO - following repeated delays - which will see a 5 percent share of the company sold over two stages.

Banks have been appointed for the stock market sale, said to be the biggest in history.

Doubts had already been cast on Saudi Arabia's hopes to accrue $2 billion from the partial sale of the state energy company, and the recent explosions and blazes at the Abqaiq oil production facility has cast further questions on the value set by Riyadh.

Although Yemen's Houthis have claimed responsibility for the drone attacks, some US officials have suggested cruise missiles fired by Iran caused the blasts, which would mark a sharp escalation in tensions between Tehran and its adverseries.

This would have huge ramifications for the geopolitical situation in the region and oil production.

"We will have to see if the Saudi monarchy chooses to delay the IPO as it focuses on this attack and the aftermath," Wald added.

"Saudi Arabia should carefully consider what impact a future attack on a publicly listed Aramco could have on its stock exchange."

 

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