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Aramco IPO or not?

October 17, 2017

China is offering to buy a stake in Saudi national oil conglomerate Aramco directly, the Reuters news agency has reported. But whether the kingdom will play along is not clear at all as it weighs several options.

https://p.dw.com/p/2lwZN
Saudi Aramco employee
Image: Reuters/H. I Mohammed

Saudi Arabia lost hundreds of billions of dollars in oil income and posted huge budget deficits in the wake of the 2014 crash in global crude prices.

The country is the world's top crude exporter and is now making even deeper cuts to its oil production, long the backbone of the domestic economy.

A factor influencing Saudi oil policy is the planned sale of close to 5 percent of national oil conglomerate Aramco in an initial public offering (IPO) in the course of 2018.

A potential rise in oil prices by then will likely earn the kingdom more returns from the sale of Aramco stocks, but to what extent remains a point of debate among analysts.

Seeking the best deal

Reuters reported Tuesday that China was now offering to buy up to 5 percent of Saudi Aramco directly.

The news agency said Chinese state-owned oil companies PetroChina and Sinopec had written to Aramco to express an interest in a direct deal.

Industry sources were quoted as saying that Riyadh was keen on China — its biggest buyer of oil — becoming a cornerstone investor in Aramco, but no decision had been taken on whether to accept Beijing's offer.

Any alliance between Saudi Arabia and China could go beyond the purchase of a stake in Aramco and also include a reciprocal move by the Saudi company to invest in the Chinese refining industry.

But there are other options as well as sovereign wealth funds from South Korea and Japan plus Russia's RDIF fund also seem to be interested in acquiring a stake in Aramco, Reuters said.

hg/jd (dpa, Reuters, AFP)