State-owned Saudi Aramco, the world’s largest crude oil producer, said Friday it is considering a share offer as part of economic reforms by the kingdom hit by a record budget deficit.
The announcement comes after oil prices plummeted to 12-year lows on world markets because of a global supply glut, increasing strains on Saudi Arabia’s public finances.
The company “has been studying various options to allow broad public participation in its equity”, a statement said.
This would be through the listing on capital markets “of an appropriate percentage of the company’s shares and/or the listing of a bundle (of) its downstream subsidiaries,” it said.
“This proposal is consistent with the broad and progressive direction pursued by the kingdom for reforms, including privatisation in various sectors of the Saudi economy and deregulation of markets, which the company strongly supports,” it added.
The statement comes a day after The Economist published an interview with Saudi Deputy Crown Prince Mohammed bin Salman who said a share offer was under review.
A public listing by Saudi Aramco would make it the first major state-owned oil firm in the Gulf to be floated on markets.
Saudi Aramco said that, after studying the options, the findings will be presented to the board of directors, which will make recommendations to the company’s Supreme Council.
The council is chaired by Prince Mohammed and has overseen Saudi Aramco since it was separated from the oil ministry last year.
The kingdom, which is fighting a costly war against rebels in Yemen, is confronted by unusual economic challenges caused by plunging global oil prices.
Last week, it reported a record deficit of $ 98 billion (90 billion euros) for 2015.
And it projected a shortfall of $ 87 billion this year, with crude prices currently around $ 34 a barrel, down from more than $ 100 early in 2014.
In an unprecedented departure from its decades-old generous welfare system, Riyadh’s budget last week announced rises in fuel, electricity, water and other prices.
In his interview, Mohammed said a share offer “is something that is being reviewed, and we believe a decision will be made over the next few months”.
– ‘Very big step’ –
The thirty-something prince said he was personally enthusiastic about the step, which would be in the interests of the market, the company and greater transparency
Mohammed, the son of King Salman, is also defence minister and heads the kingdom’s main economic coordinating council.
The dive in oil prices is largely due to Saudi Arabia’s own policies and those of other members of the Organization of the Petroleum Exporting Countries (OPEC).
They refuse to cut crude production as they seek to drive less-competitive players, including US shale producers, out of the market.
Analysts expected the kingdom would make only a small stake available to the public.
Abhishek Deshpande, an analyst at Natixis (Paris: FR0000120685 – news) , said talk of an IPO shows the kingdom’s determination to address the economic consequences of low oil prices.
“It (Other OTC: ITGL – news) could be a very big step forward and also means oil prices will stay low for a while,” Deshpande said.
Other analysts agreed there would be limited or no effect on the oil market itself.
The kingdom has adopted a policy of selling shares in all major state-owned firms.
Saudi Arabia’s stock exchange for the first time last year allowed foreign banks, brokerage houses, fund managers and insurance companies to invest directly on the Tadawul All-Shares Index (TASI), provided they meet the requirements (Other OTC: UBGXF – news) .
