Saudis Stick to IPO Plans Despite Drone Attack

Julija A. Image
ByJulija A.
September 17, 2019

Saturday’s attack on Saudi Aramco's largest oil processing facility has crippled the monarchy’s oil output by more than half, reducing output by 5.7 million barrels per day.

The attack comes in the midst of Saudi Arabia’s historic plan to sell a portion of the company’s stock to the public for the first time. Media reports say the Saudis intend to sell 1% of the company this year, raising as much as $20 billion, and another 1% in 2020. The domestic stock sales would pave the way for a later international IPO.

The anticipated $20 billion yield would give the company a total value of $2 trillion.

The decision to partially privatize the state oil company comes as part of the economic reforms of Saudi Crown Prince Mohammad Bin Salman.

The attack came days after Aramco hired banks, including giants like Goldman Sachs and Morgan Stanley, to help them speed up the IPO. The planned IPO has garnered a lot of attention and has been cited as the biggest oil deal in human history.

The September 14 drone attack is likely to cause share values to plummet as the price of crude oil has surged to more than $71 per barrel. Iran-backed Houthi rebels from Yemen have claimed credit for the attack.

Observers expected the Saudis to cancel or at least delay the Aramco IPO, but the royal family is apparently on track to continue with the sale. It is unclear whether oil production will be restored early enough to accommodate the original IPO schedule.

Now that Aramco’s vulnerability has been exposed, investors are questioning how safe a buy the company is. The attack is a reminder of the cost of doing business in the war-torn Middle East.

While no one can be sure of the exact estimate of share prices in the aftermath of the incident, analysts are suggesting that the company is now worth around $1.5 trillion. This would make the 1% share worth an estimated $1.5 billion.

The damage is estimated at 5.7 million barrels per day of output loss. While Aramco struggles to convince bankers and analysts that the attack was a fluke, Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital in Abu Dhabi, says there is a 70% possibility for a new strike on Saudi oil production.The Houthi rebels who claimed the attack confirmed that they are on the warpath, adding that the strike came as retaliation for five years of air strikes, including strikes at civilian targets.

At this point is seems highly unlikely that Aramco will recover its oil production soon. We have yet to see how this will affect the IPO as the country with the largest oil reserve in the world continues to make its first steps towards market liberalization.

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Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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