Market Insider

Saudi Aramco IPO could be back on front burner, as company plans first ever investor call

Key Points
  • Saudi Aramco is expected to hold its first ever investor call Monday, after meeting this week with bankers on its potential initial stock offering.
  • A source says Aramco is trying to bring forward its offering, but it remains subject to oil prices, stock market conditions and the global economy.
  • The IPO is a cornerstone of Crown Prince Mohammed bin Salman's plan to diversify the Saudi economy, and he is pushing for a $2 trillion valuation of the company while bankers see an average value closer to $1.5 trillion.
Crown Prince of Saudi Arabia Mohammad bin Salman speaks in Riyadh.
Bandar Algalour | Saudi Kingdom Council | Anadolu Agency | Getty Images

The success of Saudi Aramco's debt offering has given Saudi officials confidence that they can bring their IPO to market sometime in 2020, sources familiar with their thinking said.

Saudi Aramco's board was meeting with bankers in Boston this week, and the IPO of the world's biggest oil company was on the agenda. Recently, Saudi energy minister Khalid Al-Falih said Aramco would likely go public in 2020, 2021. One source suggested the company is trying to move the timeline forward, with an announcement in the fall and the offering of a small percentage of Aramco next year.

Aramco is expected to hold an investor call Monday, its first ever following its board meeting. It is expected bond investors will be on the call, and it is not clear which company officials will speak and what they will say about the stock offering, or whether they will take questions.

Saudi Arabia's Crown Prince Mohammed bin Salman had planned the public offering of Aramco to be the cornerstone of his vision to transform the kingdom from an oil producer to a more diversified economy. But it was put off previously, and Aramco reached a $69.1 billion deal to purchase a majority stake in petrochemicals firm Sabic from the kingdom's sovereign wealth fund, boosting the fund's buying power and ability to diversify holdings.

MBS, as the crown prince is known, is seeking a $2 trillion valuation for Saudi Aramco, but there still seems to be a gap between what the prince would like to see and what bankers view as a reasonable market price, given the wild cards of oil prices, stock prices and the global economy. The bankers' valuations average around $1.5 trillion, one source said.

"It's going to be a lot harder job to get there, especially since going into 2020 doesn't look fantastic for oil prices," said one source. But the company may show strong cash flow to help make its case.

"It's clear the 10 fold over-subscription for the debt gave a giant burst of confidence to doing an IPO," said one source. "But there's a big difference between a debt offering and reporting quarterly performance to shareholders around the world."

Saudi Aramco issued $12 billion in bonds in April in an offering that saw sky-high demand of $100 billion.

A report that Saudi Arabia called other producers to discuss how to support oil prices helped kick up crude prices Thursday after its steep decline. Brent futures were trading at $57.47 per barrel, and it is down 11.7% month-to-date. One source dismissed that report as unlikely, based on the fact that OPEC is currently producing about 2 million barrels a day beneath its quota and cutting further would be futile.

Saudi Arabia earlier announced that demand for its oil was improved, with a 700,000 barrel per day increase in customer request for supply for September, over August.

"Obviously, it's the latest round of verbal intervention by the Saudis to try to push back against the narrative that the demand growth outlook is cratering for the oil market," said John Kilduff of Again Capital.