Transparency has never been a strong calling card for Saudi Aramco, the world’s largest oil producing company. So when the deputy crown prince Mohammed bin Salman mused publicly in January that the kingdom was considering selling shares it provoked a storm of interest, nowhere perhaps more acutely than in the company head offices in Dhahran.
Then energy minister Ali Al Naimi and Aramco board chairman Khalid al Falih appeared to be caught somewhat off guard with Mohammed bin Salman’s comment that he was “personally enthusiastic” about an IPO. The prince added “I believe it is in the interest of the Saudi market and in the interest of Aramco and it is for the interest of transparency and to counter corruption, if any, that may be circling around Aramco.”
In May Khalid al Falih replaced Ali Al Naimi as oil minister. And there is no doubt that by then he was completely onside with the proposed IPO. But he made clear at the Vienna OPEC meeting in early June what minority investors will need to understand: there will continue to be a strong government hand in the running of the company.
“The government makes decisions on production and capacity. It is a win win policy and strategy that the kingdom has adopted. Investors will have to accept that reality.”
At the same time he acknowledged that the tight relationship between Saudi Aramco and the government would inevitably create issues given that the company is the centrepiece of Mohammed bin Salman’s ambitious economic restructuring plan, Vision 2030. In Vienna, Mr Al Falih spoke with reporters of the need for “extensive rewiring” to delineate projects driven by government from those with a purely commercial focus.
But at this stage it is very difficult to see any clear water between the two, particularly as the deputy crown prince is setting the agenda and calling the shots in no uncertain terms, something of which potential investors will be acutely aware.
The intention is to launch the IPO by 2018, a date which Mr Al Falih says is achievable. But given the challenges that due diligence and open books will place on a company far more used to opacity, industry watchers remain sceptical.
As Jason Tuvey, Middle East economist at London-based Capital Economics notes: “Clearly there are many issues that the government will need to overcome if it is to get the full confidence of investors in this IPO. In particular, splitting the business from politics is likely to prove extremely difficult.”
In the meantime Saudi Aramco is on a charm offensive, promoting itself as a global company with strong core values and ambitions rooted in a pragmatic understanding of the world’s energy needs.
Writing in the Annual Review Khalid Al Falih noted the key goal is to “energize people and ideas, create ever more opportunities from our resources and help men and women around the globe realize the vast promise of energy.”
And at a recent meeting in London, Saudi Aramco executives spoke of the company’s ambition to be the world’s largest energy and chemicals company by 2020 with stated goals of reinforcing its oil and gas pre-eminence, further enhancing value chain integration, supporting growth in the kingdom, becoming a world leader in tech innovation and being an employer of choice for its extensive operations in both the kingdom and globally.
They also talked proudly of Aramco’s engagement in community projects such as the Prince’s Trust charity cycle ride from Buckingham Palace to Windsor Palace with 4000 participants, something that quite nicely ticks the corporate social responsibility box.
Without question, then, Saudi Aramco has much to offer potential investors. It is a well run company with experienced and seasoned leadership – one would look hard and long to find an executive of Mr Al Falih’s calibre anywhere else in the global energy sector. But he is also a state minister, something of a two edged sword as far as investors are concerned. They may well ask: will it be the market or Mohammed bin Salman who determines corporate strategy?
Depending on how one values Saudi Aramco, and $ 10trn is probably not far off the mark, an IPO of less than 5% will generate a staggering near $500 billion return, revenue that the government and the deputy crown prince will need to harness in order to carry forward what amounts to a fundamental transformation of the entire economic structure of the kingdom.
So the challenge between now and 2018 is to get the issue of transparency properly sorted. Whether that will be achieved remains, like many of the other goals of Vision 2030, a rather large question mark, one that hangs firmly over the selling of shares in Saudi Aramco.