Complex Made Simple

Aramco’s IPO headlines Saudi asset privatization as oil loses lustre

Saudi and Aramco have recognized that demand for oil will eventually slow and stop. Is this why Saudi privatization is underway?

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Don’t kid yourself.

A recent report showing Saudi aiming for $11bn in privatization revenues by 2020 pales when compared to about $100bn through the sale of 5% of Saudi Aramco, in 2021 alone.

If it fetches that sum. Oil is facing a tough challenge from renewable energy efforts, and it is becoming more urgent for Aramco to sell while crude is still on solid ground.

Time is running out for oil.

Time to privatize is now.

Read: Saudi Aramco has a trick up its sleeve to cash in without an IPO

Saudi asset privatization now public knowledge 

Bloomberg reported that Saudis are set to earn $11bn by 2020 from the sale of assets effort in 2019 and 2020 that includes the sale of stakes in utilities, soccer clubs, flour mills and medical facilities.

It said Saudi’s Stock Exchange, Tadawul is likely to IPO after inclusion of Saudi stocks in indexes compiled by FTSE Russell and MSCI Inc. boosts the company’s value in 2019 and beyond.

“Plans to sell four flour milling companies by Saudi Grains Organisation this year will come three years after the idea was announced,” said Bloomberg.

“The sale of the $7.2 billion Ras Al Khair power plant on the east coast is expected to be done by 2020,” it added.

Saudi also plans sale of 16 Soccer Clubs for up to $1.5bn, according to Bloomberg.

A number of tenders for municipal assets related to commercial-land for development, renewable energy PPP projects in solar and wind, parking centres; a second cargo license station at King Khalid International Airport, a PPP for independent schools, as well as school buildings on a build-maintain-transfer basis, PPP tenders in radiology, laboratories, hospital commissioning and housing for health facilities staff are in the works.

No more delays to Aramco IPO

On the sidelines of Atlantic Council Global Energy Forum in Abu Dhabi, Saudi Energy minister Khalid Al Falih said on Sunday the Kingdom is sticking to its 2021 timeline for Saudi Aramco’s initial public offering (IPO), as reported by Gulf News.

“Aramco is indeed the world’s valuable company and the world’s most important. This bodes well for the company’s bond plans, which will be launched in a few months, ahead of the acquisition of Sabic shares from PIF and of course the IPO not too distant in the future,” Al Falih said

When asked by reporters how big the bond is expected to be, he said it will be in the range of 10 billion, Gulf News reports.

“We will decide within the next couple of weeks,” he said, without specifying the currency of the planned issuance of the bond, but they are likely to be denominated in US dollars, according to a report by Reuters.

Aramco reserves  

Prominent industry site said that Saudi Aramco released an audit of its oil reserves lat week, confirming 266.3 billion barrels of oil reserves and 307.9 trillion cubic feet of natural gas. “Meanwhile, Aramco is expected to issue its first ever international bond sale later this year, with plans to use the proceeds to finance its ($70bn) acquisition of petrochemical giant Sabic,” said OilPrice.

Oil entered a bull market last week, having gained 20% with U.S. West Texas Intermediate (WTI) rising above $52 per barrel, and Brent above $61.

OPEC had agreed to cut oil output by 1.2 million bpd this year to support prices to help stabilize the market and in December had managed to reduce output by 600,000 barrels a day, Al-Falih said last week.

On Monday, International Brent crude oil futures were at $59.91 per barrel, down nearly 1% from last close, according to Reuters, while WTI futures were also down nearly 1% at $51.12 a barrel.

Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said “the deterioration seen recently in forward-looking economic data from the U.S. to Europe and China” meant that the upside for crude oil futures was likely limited to $64 per barrel for Brent and for $55 for WTI.

Oil losing its grip on energy

OilPrice reported that Automakers to spend $300 billion on electric vehicles (EVs) over the next decade, quoting Reuters.

“Nearly half of that total – $135 billion – will be spent in China, where a suite of government policies are pushing technologies and EV adoption forward,” said Reuters.

Bloomberg says that the biggest concern in the second decade of the 21st century is that some of those (Aramco) reserves will never be produced at all, making them worthless.

“Global oil demand is now expected to peak sometime before 2050 and then go into reverse, while the ability to extract from shale has opened up huge potential new sources of supply,” says Bloomberg.

“Sales of traditional internal combustion engine (ICE) passenger vehicles may already have peaked,” according to BloombergNEF.

Crude producers in the U.S. are pumping a record 11.7 million barrels a day, according to the Energy Information Administration.

Shale explorers need almost $54 a barrel for their oil to eke out a profit because of rising costs for equipment, crews and raw materials needed to extract crude, according to JPMorgan Chase & Co.