Attack Increases Risks for Saudi Aramco’s IPO

The attacks on Saudi Arabia’s oil facilities are testing new top officials at the Saudi Arabian Oil Co. and the kingdom’s national oil ministry, adding a fresh element of risk for international investors hoping to take part in Aramco’s initial public offering of stock. Saudi Aramco is gearing up for a two-part IPO, in which it hopes to first sell a sliver of itself to investors on the local Saudi exchange, and then list shares internationally, according to people familiar with the matter. The listing plans have long been dogged by questions over valuation and the venue for an international stock-market debut.

The weekend attack puts into focus another new risk, unusual for most companies planning an IPO: the threat of more attacks that might bottle up production by cutting revenue and profit, or otherwise shake investor confidence in Aramco’s longer-term investment value.

The attack also comes at a sensitive time for Aramco leadership.

Khalid al Falih,

who until recently led both Aramco, as chairman, and the country’s oil sector, as energy minister, was earlier this month relieved of those positions. Two officials untested by crises of this kind are now in charge:

Yaser Rumayyan,

who leads Saudi Arabia’s main sovereign-wealth fund, now heads Aramco and Crown Prince

Mohammed bin Salman

’s older brother, Abdulaziz bin Salman, is just days in to his new job as energy minister. After putting the IPO plans on hold, Saudi Arabia recently ramped them back up, putting a fresh spotlight on its operations. Aramco’s management just recently appointed bankers to advise on the IPO. Saudi oil officials and advisers are now concerned that investors crucial to a successful listing might become skittish about an attack on Saudi Arabia’s biggest oil plant. Still, they say, there are so far no discussions about a delay in the IPO. Saturday’s attack on the Abqaiq oil-processing facility cut off 5.7 million barrels a day in production. Saudi officials say they should be able to restore about one-third of that by the end of Monday, and be able to get production back up to normal in coming days, using stored oil and different facilities. But the processing plant sustained significant damage, and getting it back up online fully could take weeks, according to people familiar with the plans. Aramco’s valuation has been a point of contention between Prince Mohammed, who runs the kingdom’s day-to-day affairs, and some bankers. The crown prince and his banking advisers expect the IPO could value the company at roughly $2 trillion and finance an ambitious program to diversify the economy beyond oil. Other bankers and several Aramco executives say the company should be valued at closer to $1.5 trillion. A key metric had long been the price of oil. The attacks could now also figure in any investor valuation. If Aramco continues to be a target of attacks, some Saudi officials and advisers say the market might need a further discount of as much as $300 billion.

“The most natural thing to happen is to see risk premiums rise which would lower the valuation,” one of these officials said. “In the current valuation, Aramco does not count for serious attacks like these.” An Aramco adviser said that even if oil prices spike on the attacks, “the high risks will offset those hikes in the valuation.” The international segment of the company’s stock-market debut could be especially affected by geopolitical risks, Eurasia Group analyst

Ayham Kamel

said in a note. Aramco owns stakes in refineries in the U.S. and India, but it generates most of its profit from giant oil fields, plants and exports in the kingdom. Saudi officials worry the inability of the Saudi military to fend off attacks against such valuable infrastructure means Aramco won’t command the sort of valuation diversified international oil companies get on the market. Prince Mohammed initiated the conflict against Houthi rebels in Yemen in 2015. The rebels have intensified the fight recently, with the backing of Iran, and have waged an increasing number of rocket and drone attacks on Saudi Arabia. In May, Houthis launched attacks on the strategically important East-West Pipeline to the Red Sea, followed last month by an attack on the Shaybah field, which generates about one million barrels of oil a day. “These attacks follow a number of others over the last year on Aramco and regional oil-supply-chain assets. But the context has changed with oil prices well off their last 12-month peak,” said

Hasnain Malik,

head of equity strategy at financial bank Tellimer. “All of this suggests greater sensitivity in asset prices to these attacks compared to the precedent ones,” he added. Write to Summer Said at summer.said@wsj.com, Rory Jones at rory.jones@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

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