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Corporate Governance at Saudi Aramco

DUBAI – Since the announcement last year that Saudi Aramco, the world’s largest oil company and Saudi Arabia’s corporate crown jewel, would go public, the media have been abuzz with speculation – and not just about the company’s massive valuation. While the initial public offering is expected to happen in 2018, the timing – not to mention the approach the government will take – remains far from certain.

A short-term “fire sale” of a minority stake in Saudi Aramco does not appear to be warranted by Saudi Arabia’s current macroeconomic situation. Given slightly higher hydrocarbon prices, lower government expenditures, and potentially higher tax receipts, many predict that the country’s budget deficits will narrow. Sovereign borrowing is also expected to decline, in stark contrast to last year’s record-high bond issuance.

Furthermore, the Saudi government has identified dozens of other state-owned enterprises (SOEs) to privatize, in order to help fill government coffers, deepen the equity market, and boost the private sector’s role in the economy. Stimulating interest in the Saudi capital market with these listings prior to the Saudi Aramco IPO might be wise, given that IPOs throughout the Gulf region have slumped in recent years.

In any case, despite all the media speculation, the specifics of how and when Saudi Aramco will be privatized have not been considered thoroughly. Although the Saudi Stock Exchange, Tadawul, is by far the largest in the Middle East, it is neither large nor open enough to handle the listing of Saudi Aramco, valued by the authorities at $2 trillion.