Saudi Aramco Is Said to Postpone Its Potentially Record-Breaking IPO

Saudi Arabia’s state-owned oil giant has suspended its plans to go public, a decision that puts on hold what would have been by far the biggest initial offering on record — or perhaps signals its cancellation.

The company, Saudi Arabian Oil Co., and its advisers are instead focusing on buying a stake in SABIC, a huge Saudi chemical producer, people briefed on the matter said Wednesday, speaking on the condition of anonymity because the discussions were private. The shift in focus to a deal for SABIC, one of the people added, means that the earliest work could resume on a Saudi Aramco stock sale will be late next year.

The delay cast more doubt on the future of what is meant to be not just a landmark deal for financial markets but one of the biggest milestones in Saudi Arabia’s history.

The kingdom’s de facto ruler, Crown Prince Mohammed bin Salman, had hoped to use the billions of dollars the IPO would raise to finance his Vision 2030 plan, an ambitious effort to wean his country off its dependence on oil. Among the plan’s expensive elements is the creation of a $500 billion city called Neom, meant to run entirely on clean energy and be serviced by robots.

An IPO of Saudi Aramco — which would sell shares on its home Tadawul exchange and another major international stock market — would mean a gusher of fees for all the advisers involved, including the banks and law firms on retainer. Stock exchanges around the world, from New York to London to Tokyo, have sought the prestige of hosting what would be a seminal event for the financial markets. World leaders, including President Donald Trump, have pitched their markets to Salman.

But the plans to take the state-owned oil monopoly public have been bedeviled by the sheer complexity of the undertaking. Though Salman had hoped for a $2 trillion market value for Saudi Aramco, oil industry experts called that too high. And legal advisers have grappled with potentially thorny issues, including the possible pitfalls that could arise from choosing a foreign exchange on which to offer shares.

In a statement, Khalid Al Falih, the Saudi energy minister and the company’s chairman, said the IPO had not been called off.

“The government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum,” he said. “This timing will depend on multiple factors, including favorable market conditions.”

The statement also suggested that an important acquisition would come first.

Last month, Saudi Aramco confirmed that it was in talks with the Saudi government’s sovereign wealth fund, which owns a 70 percent stake in SABIC, to buy a “strategic interest” in the chemical company.

Buying a part of SABIC, a giant in its own right, could make Saudi Aramco a more valuable company while the petrochemical industry is growing around the world. That, in turn, could help the oil company draw even more interest in a public offering.

SABIC, which earned a net profit of nearly $5 billion in 2017, produced more than 70 million tons of petrochemicals and 5 million tons of steel last year, according to Middle East Petroleum and Economic Publications, which tracks the industry.

Saudi Aramco has been trying to move into the sector, which it believes could provide a hedge against an eventual decline in demand for oil as a fuel. This month, Saudi Aramco’s board approved $14 billion in petrochemical projects and project expansions, including a large refinery in Texas and a joint venture with the French giant Total in Saudi Arabia.

The two companies have grown closer recently, including by starting plans for a joint chemicals plant in 2025. And SABIC would give Saudi Aramco invaluable expertise in the petrochemicals sector.

“Saudi Aramco has been quite deliberate in adding refineries, terminals and, more recently, chemical plants,” said Osmar Abib, a managing director at Credit Suisse who has been closely following the proposed public offering. “It is all with the key objectives of securing more access to markets and enhancing overall returns.”

Saudi Aramco’s buying a stake in SABIC would have another benefit for the Saudi government. A deal would still fill the coffers of the country’s sovereign wealth fund with billions of dollars, allowing it to make some of the Vision 2030 investments it had planned to fund with a public offering. The plan to delay the IPO was reported earlier by Reuters.

But skeptics of a SABIC transaction worry that Saudi Aramco would be taking on a financial burden by paying tens of billions of dollars for a stake in the chemical company. And adding on a big petrochemical business might reduce the overall profitability of Aramco, which is believed to enjoy among the world’s lowest costs for extracting the oil it produces.

In any case, any eventual listing of Saudi Aramco shares will now have to wait until the SABIC acquisition is completed.

But the decision to pause planning for a public offering of Saudi Aramco — and the pivot toward the transaction with SABIC — prompted some analysts to suggest that a public listing may be doomed.

Jim Krane, an energy expert at Rice University, said he still suspected Salman “dreams of a diversified Saudi economy.”

“Aramco is still likely to play a big role in this goal, but Aramco might not do this through an IPO,” he said. “There are certainly other ways to raise capital.”