Why did Saudi Arabia call off Aramco flotation?

Saudi Arabia has denied reports it has cancelled plans to publicly list state-owned oil giant Aramco.

On Wednesday Reuters said the initial public offering (IPO), billed as the biggest stock floatation in history, had been “called off for the foreseeable future,” citing four “senior industry sources”.

This was strenuously denied yesterday by Saudi energy minister Khalid al-Falih, who said: “The government remains committed to the initial public offering of Saudi Aramco, in accordance with the appropriate circumstances and appropriate time chosen by the government.”

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A report in the Financial Times seems to contradict these claims, however, as the newspaper said the Gulf kingdom’s sovereign fund is set to borrow up to $12 billion from international banks after the IPO was put on hold.

A separate source also told Axios: the IPO “has been officially dead for a month or so — everyone got sent home for Ramadan and of course Eid just broke, but no one was invited back.”

The proposed listing of Aramco was a central part of Crown Prince Mohammed bin Salman’s reform drive aimed at restructuring the kingdom’s economy, reducing its dependence on oil revenue and cutting its debt.

In 2016 the prince announced plans to sell about 5% of the company via a local and international listing predicting the sale would value the whole company at $2 trillion or more.

However, the decision to take the company public has been met with fierce opposition in the upper echelons of Saudi Arabia’s ruling family, while several industry experts questioned whether a valuation that high was realistic warning it could instead expose the weaknesses within the Saudi economy.

This has not stopped exchanges in London, Hong Kong and New York vying to host the IPO.

In London the Financial Conduct Authority changed its rules to make the listing easier, “attracting criticism from MPs and from the Institute of Directors who said adapting regulations to accommodate Saudi Aramco could harm the UK's reputation for good governance”, says the BBC.

The Daily Telegraph says the decision to suspend the IPO “raises questions” for City authorities who relaxed Britain’s listing rules in an attempt to attract Aramco to the London market in competition with New York and Hong Kong.