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Saudi Aramco may consider spinning off its growing downstream division, which includes oil refining assets, a business where the oil giant is investing heavily to meet rising fuel demand in Asia, strategists said.
Aramco must first complete its planned acquisition of a strategic stake in Saudi petrochemical maker SABIC before deciding whether to list its downstream business. No decision has been made and Saudi Aramco declined to comment on what it called "rumors or speculation."
Riyadh-listed SABIC, the world's fourth-biggest petrochemicals company, is 70 percent owned by the Public Investment Fund (PIF), Saudi Arabia's top sovereign wealth fund. It has a market capitalization of 385.2 billion Saudi riyals ($103 billion).
"The first step will be completing the acquisition of the 70 percent of SABIC held by PIF and integrating that into Aramco's petrochemical operations. That will be a lengthy and complicated business given the size of SABIC," said Robin Mills, CEO of Qamar Energy, and a former Shell executive.
"After that, yes, there could be an offering of additional stock in a merged downstream unit either on Tadawul (Saudi's stock exchange) or an international exchange," Mills said. "This would sidestep many of the concerns on listing the full company over transparency, reserves, political exposure, sensitivity to oil price, country exposure and the large size of the unit."
Restructuring the Aramco listing along those lines may make it more appealing to potential investors who have voiced skepticism about the transparency of the kingdom's crude oil reserves, the long-term viability of the oil industry and the balance between investor and Saudi national priorities.
The recent sell-off in benchmark oil prices is also bound to raise questions about Aramco's ability to meet the target valuation of $2 trillion.
"Perhaps a creative solution can be found whereby Aramco's operating business and their commodity reserves are separated and listed or treated separately," said Bryan Goh, chief investment officer at Bordier & Cie, a private bank in Singapore.
Despite the setbacks to the IPO's timeline, the state oil giant is moving ahead with multibillion-dollar projects in China, India and Malaysia and aims to finalize new partnerships this year, Abdulaziz al-Judaimi, Aramco's senior vice president for downstream, told Reuters in June.
Aramco plans to raise its refining capacity to between 8 million and 10 million barrels per day, from some 5 million bpd currently, and double its petrochemicals production by 2030, Judaimi said.
Some analysts argue that splitting the business risks depriving Aramco of the competitive advantage an integrated business has to offer.
"Selling the downstream assets separately does not necessarily make business sense since the integration is part of the value creation proposition offered by Aramco as an energy conglomerate," said Ayham Kamel, head of Middle East and North Africa at Eurasia Group.
A public listing of Aramco's downstream business would need "a huge shift in mindset," said Suzanne Minter, director of energy solutions at S&P Global Platts.
"What makes the Saudi [Aramco] IPO attractive in my mind is the fact that the best refineries in the world are integrated with 'free' oil … so they get to capture all pieces of the value chain as margins move up and down that chain," Minter said. "If you remove that integration, and demand for refined slows, then I think you lose advantage."
— Reuters contributed to this report.