The Largest IPO In History Is Still On, Or So They Say

&l;p&g;The plans for Aramco's IPO have been changed and delayed so many times since Saudi Arabia's crown prince Mohammad first&a;nbsp;&l;a href=&q;https://www.economist.com/middle-east-and-africa/2016/01/06/transcript-interview-with-muhammad-bin-salman&q; target=&q;_blank&q; class=&q;color-accent&q;&g;mentioned&l;/a&g; in January 2016, that plenty of observers have questioned the plan and whether it would ever really happen.&l;/p&g;&l;figure class=&q;image-embed embed-0&q;&g;&l;div&g;&l;img src=&q;https://specials-images.forbesimg.com/imageserve/594ff93c11ff434994f7ef63f5e83b2a/960x0.jpg?fit=scale&q; alt=&q;Saudi Arabia Oil&q; data-height=&q;3726&q; data-width=&q;5646&q;&g;&l;/div&g;&l;figcaption&g;&l;fbs-accordion&g;&l;p class=&q;color-body light-text&q;&g;FILE - In this June 23, 2018 file photo, Saudi Energy Minister Khalid al-Falih attends a news conference in Vienna, Austria. Saudi Arabia said on Thursday, Aug. 23, 2018 that it &q;remains committed&q; to an initial public offering of the state-run oil&l;small&g;ASSOCIATED PRESS&l;/small&g;&l;/p&g;&l;/fbs-accordion&g;&l;/figcaption&g;&l;/figure&g;&l;p&g;Now, once again, the Saudi government is insisting that IPO plans are still in the works. Khalid al Falih, the Saudi Oil Minister, has been cited by&a;nbsp;&l;a href=&q;https://www.thenational.ae/business/energy/saudi-aramco-ipo-will-take-place-within-two-years-okaz-reports-1.834095&q; target=&q;_blank&q; class=&q;color-accent&q;&g;local media&l;/a&g; insisting that the IPO will happen within two years. Originally, the prince suggested a valuation of two trillion dollars, which would make Aramco twice as valuable as any other company in the world, and the local media is continuing to tout that number.&l;/p&g;&l;p&g;Other than King Salman and Prince Mohammad, al Falih is in the best position to know the future of the company. Al Falih is a former Aramco CEO and longtime employee. He is now chairman of the Aramco board, in addition to his roles as Oil Minister and member of various other governmental committees. This is the man who continues to insist that the world's biggest IPO will, in fact, happen, despite the doubters.&l;/p&g;&l;fbs-ad position=&q;inread&q; progressive&g;&l;/fbs-ad&g;&l;p&g;Here's why, despite the delays, the Aramco IPO might still happen:&l;/p&g;&l;p&g;&l;ol&g;&l;li&g;Politically, King Salman and his son, Prince Mohammad, have&a;nbsp;&l;a href=&q;https://www.forbes.com/sites/ellenrwald/2018/08/22/a-cancelled-aramco-ipo-could-mean-political-trouble-for-saudi-rulers/#4cd6f7751e81&q; target=&q;_blank&q; class=&q;color-accent&q;&g;a lot riding&l;/a&g; on the IPO. The first mention of the IPO came during Mohammad's first interview with western media, in The Economist. The IPO was originally a central component of the prince's economic diversification and reformation plans. Much of the Saudi population was excited by the IPO idea, although some did fear it might mean losing control of the country's greatest natural resource. There was also anticipation among private Saudis for the opportunity to buy equities in the pride of the kingdom's business scene. A public reversal of IPO plans would be a disappointment and require admitting that the doubters were right. At this point the royal family may have to go through with the IPO or at least delay it until the population forgets. On the other hand, if Aramco has determined it cannot achieve something close to a two trillion dollar valuation, it could be politically advantageous to quietly shelve the IPO rather than publicly embarrass the prince.&a;nbsp;&l;/li&g;&l;li&g;&a;nbsp;Saudi Arabia and the prince want to build the world's largest sovereign wealth fund. However, the Saudi fund, called the Public Investment Fund ("PIF"), is valued at less than $500 billion. That is less than half the size of Norway's sovereign wealth fund. It is unlikely that Saudi Arabia will be able to grow the PIF substantially from government coffers in the near future, because the country is not running a surplus. Therefore, the best way to quickly reach the prince's goal of two trillion dollars or more is to put Aramco under PIF ownership and achieve a high valuation through an IPO. Aramco has always prospered operating&a;nbsp;&l;a href=&q;https://www.nytimes.com/2018/05/08/opinion/saudi-aramco-ipo-independence.html&q; target=&q;_blank&q; class=&q;color-accent&q;&g;independently&l;/a&g;, however, in an absolute monarchy, that could change.&l;/li&g;&l;li&g;One reason that the Aramco executives may come around to the prospect of an IPO is that it would establish a formal delineation between the company and the government. Aramco executives have valued their independence, but the current political and royal leadership seems more committed than their predecessors to determine the country's economic path through centralized planning. Post-IPO, investors and foreign regulators would insist on formal, legal processes and paperwork. An IPO would mean that the government and the government leaders could not overstep their positions as owners without going through the formal procedures of shareholders and board members. Ultimately, an Aramco IPO with a listing on at least one foreign exchange could be a helpful compromise that ensures standards of a relationship between the government and the company.&l;/li&g;&l;/ol&g;&l;/p&g;&l;p&g;The Saudi leadership is historically successful at keeping major plans from being leaked. It is part of royal family's ideal of keeping family business within the family. As a result, there is no way to know if the Aramco IPO will or will not happen in two years, five years or never. However, there are still reasons for Saudi Arabia and Aramco to pursue it.&a;nbsp;&l;/p&g;&l;div class=&q;vestpocket&q; vest-pocket&g;&l;/div&g;&q;,&q;bodyAsDeltas&q;:&q;