China Considers Spending Billions On The Aramco IPO

Various Chinese state-held companies and funds are negotiating possibly investing up to US$10 billion in the initial public offering of Saudi oil giant Aramco, which is desperate to see large investors secure the success of the world’s largest listing ever, Bloomberg reported on Wednesday, citing people familiar with the talks.

The Silk Road Fund—created in 2014 to invest internationally and boost China’s influence around the world via the Belt and Road Initiative—Chinese state-controlled oil giant Sinopec, and China Investment Corporation (CIC)—the country’s sovereign wealth fund, have held talks about potentially investing in what would be the world’s largest IPO when the world’s largest oil company goes public, Bloomberg’s sources said.

The final decision and commitments from each Chinese firm will depend on China’s government, the sources added.

A large Chinese investment in the giant Saudi oil firm would strengthen the ties between the world’s top oil exporter Saudi Arabia and the world’s top oil importer China. As a potential shareholder in Aramco, Beijing could also profit from higher oil prices and Aramco’s dividends.

Last week, Kirill Dmitriev, chief executive at the Russian Direct Investment Fund (RDIF)—Russia’s sovereign wealth fund—said that the fund would not make a huge investment in the listing of Saudi Aramco, although some Russian funds believe that the Saudi oil giant is an attractive investment.

Separately, the world’s biggest sovereign wealth fund—Norway’s US$1 trillion Government Pension Fund Global—doesn’t plan to invest in Aramco at all because Saudi Arabia is not part of its reference index, the fund’s outgoing chief executive Yngve Slyngstad also said last week.

The Saudis are seeking as high a valuation for Aramco as possible, but they may have to concede that Crown Prince Mohammed bin Salman’s target valuation of US$2 trillion is simply not achievable, as bankers have repeatedly said, and accept a valuation of US$1.6 trillion-US$1.8 trillion to ensure that the much-hyped much-delayed IPO will be a success.

By Tsvetana Paraskova for Oilprice.com