The long-awaited initial public offering (IPO) of Saudi Aramco is once again the talk of global oil investors and magnates as differences in the company's valuation is believed to be a major thorn in the oil giant's public listing goals.
According to the Financial Times, the issue from last year that kept Aramco from flying into the public market has remained a struggle for the oil company as investors continue to question the valuation that it insisted on.
Crown Prince Mohammed bin Salman said Saudi Aramco should be valued at $2 trillion, but some investors are still insisting that the kingdom's expected valuation is not possible at this point.
Industry experts noted that Aramco's valuation will not reach $2 trillion, especially with a declining global economy, as well as this isn't the first time the supposed IPO was delayed due to valuation gaps between the company and potential investors.
The IPO was announced back in 2016, when investors were largely interested in what could be the world's most wealthy company. However, the offering was delayed several times, as stock markets continue to question the initial valuation that Saudi is expecting for its crown jewel.
Aramco is expected to finally announce its IPO within the next few weeks, following the latest delay earlier this month. According to the New York Times, some insiders who spoke on condition of anonymity revealed that bankers have informed Prince Mohammed of a potentially lower valuation at $1.5 trillion.
Some analysts noted that $1.5 trillion is still a massive figure even in global stock markets with companies trading in billion-dollar offerings. This is especially true after Aramco posted earnings of $46.9 billion in the first six months of 2019.
Even with a lower valuation, the trillion-dollar valuation can still allow the kingdom to pursue its targets of a more diversified economy, as Crown Prince Mohammed has talked about over the past few years.
Aside from the valuation gap, another reason that is believed to have delayed the Saudi Aramco IPO is the drone strikes on major oil plants run by the state-owned oil behemoth in mid-September, CNN reported.
Production was hampered for several days, prompting fears of a potential global oil shortage. However, output bounced back with Aramco proving that it can overcome the latest difficulties on its way.
It remains to be seen whether the world's largest oil company will push through with the IPO before year-end but analysts believe that unless the valuation issue is resolved, Aramco's goal of going public will most likely be stalled again.
