Aramco IPO Faces Valuation Challenges

Fitch Downgrades Rating

Oil giant Saudi Aramco has seen its benchmark equity index slide as traders fear the company’s true valuation may be far below that expected at its planned IPO.
The company has seen a tumultuous three years since it first posited the idea of an initial public offering, with huge valuations mentioned, but little traction in securing a listing on any of the world’s major exchanges.
Crown prince Mohammad bin Salman has been keen to set a target price of US$2 trillion but industry valuations suggest US$1 trillion to US$1.5 trillion may be more realistic. Despite industry skepticism, markets are watching closely to guage demand for investment.
Last week, credit ratings agency Fitch downgraded Saudi Aramco by one notch after attacks on its production facilities, with the firm commenting that the “downgrade also took into account rising geopolitical tensions in the region, but also the country’s continued fiscal deficit, among other factors.”

Investment on Hold
The importance of Aramco, and its planned IPO, on the global breakbulk sector is likely to be significant, acting as a bellwether for wider investment and construction of new facilities, especially with many industry projects on hold due to uncertainty.

This importance was highlighted by the recent drone attack on its facilities, which were estimated to have impacted as much as 5 percent of world supply. The attack has also contributed to a decline in confidence in the IPO with many investors now much more wary of any involvement in the delicate political situation in Saudi Arabia.  
“I think that the attacks on the Aramco facilities have surprised portfolio managers in that they show Saudi assets as being more vulnerable to attack and disruption than many had assumed,” said Ross Teverson, head of emerging markets strategy at Jupiter Asset Management.

Announcement ‘Very, Very Soon’
Despite challenges in achieving a listing the firm is nonetheless preparing to make an announcement on its IPO imminently.
"Aramco's IPO will take place sooner than you think. I think that the announcement will be very, very soon,” Aramco Chairman Yasir al-Rumayyan at a Saudi-Russian forum in Riyadh.