Saudi Aramco IPO to impact oil companies’ stock prices, OPEC+ talks, say experts

TASS Russian News Agency | Nov 8, 2019 at 1:47 PM

MOSCOW, November 8. /TASS/. The IPO of the world's largest oil company Saudi Aramco expected later this year is not going to have a direct impact on the oil price, analysts suggest. However, the final parameters of what is expected to become the largest offering ever may influence the stock prices of oil producers, including Russian companies. Moreover, experts do not rule out that Saudi Arabia will take into account the privatization of the national company at the OPEC+ talks in December.

The plans to sell a minority stake in Saudi Aramco, which is the largest company in the world both in terms of production and reserves of hydrocarbons, were announced back in 2016. Since that time the offering has been repeatedly postponed and the IPO was expected to be conducted in 2020-2021. On November 3, it was officially reported that part of Aramco shares would be placed on the national stock exchange Tadawul. Reuters said with reference to sources that the final pricing for the initial public offering was scheduled for December 5, while the trading was expected to start on December 11.

Most market watchers share the view that the IPO will not have a direct impact on the oil price, adding though that it may influence oil producers' stock prices.

"The parameters of Aramco's valuation may become a certain standard for comparing with other oil state companies. For example, bearing Aramco in mind, one will be able to say how undervalued Rosneft and Gazprom are," Finam's analyst Alexei Kalachev told TASS.

Associate professor at the Russian Presidential Academy of National Economy and Public Administration (RANEPA) Sergey Khestanov suggests there is an indirect connection here. "Clearly if the price of Aramco's offering hits the upper bound that will drive the growth of shares of all oil companies in the world, including Russian," he said.

Analysts interviewed by TASS also stick to similar estimations of how the IPO may influence Saudi Arabia's position at the upcoming OPEC+ talks in December. The agreement on crude production cap by 1.2 mln barrels per day expires at the end of March 2020. The participating nations are to decide on the future of the agreement after that date at the December meeting in Vienna. The most probable options are to keep the current parameters of the agreement or deepen the cuts.

"The position of Riyadh is unlikely to change dramatically. OPEC+ and Saudi Arabia in particular will probably continue reducing production in a move to avoid a substantial surplus on the market," Director at Fitch Corporations Department Dmitry Marinchenko said.

RANEPA's Khestanov agrees. "If production cuts are deepened that will obviously support the price. However, an additional decrease in output will result is worsened reporting indicators of Aramco, which is unfavorable for the IPO," he said, adding that such a scenario is unlikely.

Refinitiv's senior oil and gas analyst Ranjith Raja shares the view that Saudi Arabia will keep reducing production to support the oil price both for the budget and for the cost of the company's shares. "The IPO itself will only become the first move in a series of steps to attract capital through Aramco for diversification of the economy and the launch of capital-intensive projects by PIF (Saudi Arabia's Public Investment Fund - TASS), which is why any decision connected with the oil market will take into account further offerings and will not be limited to the current IPO," he explained.