Breakingviews - Saudi can afford to scrap Aramco IPO plan:
"Saudi Aramco’s initial public offering is an idea that deserves to be put back in the ground. The sale of a 5 percent stake in Saudi Arabia’s state-owned oil giant may be pushed back into 2019, according to Bloomberg. Achieving the desired $2 trillion valuation always looked a stretch. If Riyadh really wants the money it has better options. Buying a bit more time to prepare what could be the world’s largest IPO makes sense. First, the timing of the sale – a pet project of Crown Prince Mohammed bin Salman – is awkward. Saudi is embroiled in a bitter diplomatic feud with neighboring Qatar, which has undermined Arab unity and investor confidence in the region. Closer to home the House of Saud has also been shaken by internal strife. The prince replaced his older cousin as heir to the throne in June, in what looked more like a coup than a royal reshuffle. Since political risk will be a big input into Aramco’s valuation, it would be logical to wait for calmer times. Then there is the valuation. The prince thinks the sale could raise $100 billion, but he is in a minority. According to a Breakingviews calculation, oil prices would have to trade at around $80 per barrel over the next decade – a 45 percent premium on Brent’s current value – to achieve this windfall. Tinkering with royalties and taxes is one way of juicing up the valuation. Even then, the pricing could be sensitive. Too cheap, and it will look like the kingdom has given away a piece of its crown jewel too easily. Too expensive, and the shares could fall, embarrassing the Saudi elite."
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