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GlobalData: Saudi Aramco IPO should be judged on its impact not its valuation

GlobalData: Saudi Aramco IPO should be judged on its impact not its valuation

London, November 8 - Neftegaz.RU. Following the recent news that Saudi Arabia’s national oil company Saudi Aramco will issue its prospectus to potential investors in its IPO, Colin Foreman, Deputy Editor at GlobalData, a leading data and analytics company, provides his view.

“The public sale of shares in the world’s biggest oil exporter will be the 1st time since the 1970s that private and foreign investors will have been able to own a stake in the Gulf’s upstream oil and gas assets.The IPO is a cornerstone play in Riyadh’s Vision 2030 economic reform programme, launched in April 2016, which seeks to diversify Saudi Arabia’s oil-dominated economy and increase the role of the private sector by driving growth and job creation."

““Riyadh is seeking to raise $100bn from the sale, which will be used by the government to limit budget deficit and debt growth, as well as support several infrastructure megaprojects planned in the kingdom. When the intention to list was 1st revealed by Crown Prince Mohammed bin Salman in early 2016, he gave the company a valuation of $2 trillion. Since then, a myriad of estimates have valued the company, with most now expecting a valuation of $1.5 trillion to $2.3 trillion", Foreman noted.

“While the valuation will continue until the company debuts on the Tadawul, the more important issue for Saudi Arabia is the ultimate impact of the IPO. The plan is for the proceeds of the IPO to go to the Public Investment Fund (PIF), which is the government’s shareholder in Aramco. PIF has been tasked with delivering a wide range of projects in the kingdom across multiple sectors. After 2 to 3 years of planning, these projects are moving into the construction phase, which requires a major rise in investment."

“If the proceeds of the Aramco IPO are invested as planned, and become a catalyst for broader development, then the long-term value of the listing will greatly outweigh any potential disappointment in the company’s valuation”, said Foreman.