Saudi set-back as Aramco flotation delayed until 2019

The long-awaited public offering of Aramco could be delayed amid concerns over its valuation. Sale of five per cent of the world’s largest oil company is a major cornerstone of Crown Prince Mohammad Bin Salman’s overhaul of the Kingdom’s economy. However anxieties over the $2 trillion evaluation are likely to delay the sale until 2019.

British officials, who have been trying to woo the Kingdom for the listing, were told by their Saudi counterparts of the expected delay, the Financial Times reported.

The major sticking point is the $2 trillion evaluation. Saudi Aramco’s finances and internal operations are said to be shrouded in secrecy. Its close relationship with the Saudi state has also raised financial, legal and regulatory challenges.

Industry experts have consistently questioned the Saudi evaluation of the company, described as the Kingdom’s cash cow. A report by the FT said it was probably worth half that much while other business analysts expressed incredibility over the valuation saying: “$2 trillion for Saudi oil? Forget it”.

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With Aramco IPO being seen as a linchpin in its 2030 vision, the delay would represent a setback for Riyadh. Bin Salman would have been keen to demonstrate that his plans were moving smoothly and avoid any further hit on investor confidence, which took a blow following his anti-corruption clampdown.

Critics have pointed to the “opaque and extralegal” nature of last year’s crackdown on business heads and political opponents, which rattled the very foreign investors that Bin Salman needs to woo.

“At the start of the crackdown they promised transparency, but they did not deliver it,” Robert Jordan, who served as American ambassador to Saudi Arabia under President George W. Bush told the New York Times in comments describing the impact of the crackdown. “Without any kind of transparency or rule of law, it makes investors nervous that their investments might be taken and that their Saudi partners might be detained without any rationale to the charges,” he went on to say.

A Washington think tank has also raised what it sees as “fundamental contradictions” in the Saudi Vision. Describing the ambitious challenges of the plan, the Washington Institute for Near East Policy said that a key to Vision 2030 is the release of funds from the state oil company Aramco, but asking foreign investors to put their money into the Saudi hydrocarbon sector while the country seems eager to move away from oil sends a mixed message.