Saudi Arabia hopes state oil company Aramco, which suffered from last week’s drone attack, will be valued at 2 trillion dollars in its IPO listing. This is most likely beyond Aramco’s reach, an expert tells Boom Bust.
“The Saudis probably have enough spare production and processing capability that they can restore production to pre-attack levels in the four to six weeks timeframe. [But] their deal cannot succeed at the 2-trillion-dollar level unless they decide to raise less money and go to strategic investors,” Rick Rule, chairman of Sprott US Holdings, claims.
The IPO listing is crucial to the Saudi government, he says, not only in “cementing Aramco’s position” in the global oil market, but also in “diversifying their economy” in the era of low oil prices.
“The [money raised from the IPO listing] would help the crown-prince bring [the Saudi] economy into this century, make it much less opaque than it is now and give the country the capital and the willingness to open up more than there has traditionally been,” Rule says.
However, he believes that problems may arise given the volatile atmosphere in the Gulf region – Aramco’s financing could be affected by heightened tensions across the Strait of Hormuz.
“If we had a circumstance where the hostilities became more intense between Shia Iran and Sunni Saudis across the Strait of Hormuz, and you had an interruption of the export flow of Persian Gulf crude, both Iranian and Saudi, you’d see sharply higher oil prices and less confidence in the region both in terms of Saudi and Iranian production on a global scale. That would be very difficult for the Aramco offering.”
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