THE world’s largest listing on a stock exchange — the IPO of Saudi Aramco — expected within 2018 is already under some cloud.

The move is crucially important, politically and economically, to Saudi Arabia and its new leadership. Yet signs of delay or dilution of the original IPO plan are in the air. And, this could carry consequences for Prince Mohammed bin Salman (MBS). If the reports circulating in the air turn out to be true, his commitment to the IPO could be in for some real questioning.

Saudi oil leadership has been insisting, for some time now, that the Aramco IPO would take place in 2018.

But before embarking upon the process, Riyadh needed to take a few decisions – something which is yet to happen. A decision is yet to be taken about the location of the listing. In view of the fact that Aramco could be the biggest IPO ever to be undertaken in history, the natural choice appeared to be New York or maybe even London, analysts’ underline. But strict regulations and threats of legal suits against Saudi Arabia are deterring Riyadh from going that way.

This brings to fore another issue: the real market value of Saudi Aramco. There are a lot of questions about it. MBS thinks its real value is $2 trillion. Yet, analysts differ and remain divided on the value of Saudi Aramco. And if Aramco doesn’t get valued at $2tr, then the question would be from where to generate $100 billion from the IPO of five per cent of Aramco shares, as MBS has been targeting? For MBS to back away from the stated figure remains a big if – and may carry political consequences too, some say.

Indeed, the Aramco IPO would be one of the biggest events in financial markets this year. But the question remains if the listing would take place in 2018, as originally planned?

Saudi Aramco CEO Amin Nasser while talking to Bloomberg in Davos was still hopeful for a listing within the year, yet he was uncertain.

When asked whether the IPO could be postponed to 2019, Nasser said: “We don’t know. We are currently waiting for the decision from the shareholder,” he said, in reference to the government. “As a company, we are ready, and hopefully we would be listed by the second half of 2018, but it’s all depending on the decision (by the government) on the second venue.”

Uncertainty thus continues to surround the issue.

Privately, Aramco executives and its advisers, as per Bloomberg, are still of the view that in case Riyadh gives a green light, soon enough, a listing during the second half of 2018 is still possible but in Riyadh and not London or New York, as originally envisaged. Those would be very difficult now, they are conceding.

A domestic sale may be enough to claim ‘mission accomplished’ and save face, even if it’s a long way from the original plan, they thus appear to be conceding.

But this would be a far cry from the original plan — one can’t argue!

And indeed, before the IPO, Saudi Aramco also needed to bring its house in order and make things more transparent. Aramco is endeavouring to overcome this handicap. Taxation is an issue that needs urgent attention. Currently, besides paying 50pc income tax, Aramco also pays a 20pc royalty to the government. This rate may soon change.

Talking to Bloomberg in Davos, Nasser hinted that though, the royalty will remain “for the time being” at 20pc” yet, there will be some alterations (in the royalty), when (oil) price changes in the market.”

Adjusting the 20pc royalty on oil revenue Aramco currently pays would help the kingdom raise extra money if prices climb. While not unusual in commodities industries, the move may not prove popular with potential investors. It would protect them from downturns, but also reduce their gains at times of rising prices.

A number of commodity producers take a larger share of the pie during boom times. The UK reportedly uses a similar model in the North Sea. Russia also varies tax rates with oil prices and the Australian government has proposed in the past price-linked rates for iron ore producers.

Much is at stake. At stake is the future of MBS and his ‘Vision 2030’. The IPO is crucially important to MBS and his political fortunes. It won’t be easy for him to backtrack now.

Riyadh and its leadership are under some pressure. Deadlines are approaching fast. As far as Aramco IPO is concerned, it may have to look for some face-saving now.

Published in Dawn, January 28th, 2018