Saudi considers IPO for oil giant Aramco

Saudi Arabia is considering issuing shares in state-owned oil giant Saudi Aramco, the kingdom's powerful deputy crown prince told The Economist in a rare interview published Thursday.

"That is something that is being reviewed, and we believe a decision will be made over the next few months," Mohammed bin Salman told the London-based publication after the country posted a record budget deficit due to falling oil prices.

"Personally I'm enthusiastic about this step," which would be in the interests of the market, the company and greater transparency, said the prince.

Aramco could not immediately respond to a request for comment.

The thirty-something son of King Salman chairs the Supreme Council, which has overseen the company since it was separated from the oil ministry last year.

He is also defence minister and heads the kingdom's main economic coordinating council.

Saudi Aramco is the world's largest oil company in terms of crude production and exports.

Saudi Arabia, the largest crude exporter, last week reported a record deficit of $98 billion (90 billion euros) for 2015.

It projected a shortfall of $87 billion in this year's budget, with crude prices currently around $32 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.

But Mohammed told The Economist the kingdom is "far" from an economic crisis, because it still has ample reserves and growing non-oil revenues.

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.

- 'Times are tough' -

Analysts expected the kingdom would make only a small stake available to the public.

"It would generate some cash... while at the same time put a price tag on a company that undoubtedly would be one of the biggest in the world," said Ole Hansen, of Saxo Bank.

Abhishek Deshpande, an analyst at Natixis, said talk of an IPO shows the kingdom's determination to address the economic consequences of low oil prices.

"It 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.

Jasper Lawler, of CMC Markets, said the Saudi motive is simple: "to raise cash when times are tough".

Experts say escalating tensions between Riyadh and fellow OPEC producer Iran have further dimmed prospects of agreement on a production cut needed to raise prices.

Saudi Arabia severed diplomatic ties with regional rival Iran on Sunday but Mohammed told The Economist he does not foresee a war with the predominantly Shiite state.

"For sure we will not allow any such thing."

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.

In late 2014, the kingdom's largest initial public offering raised $6 billion for Saudi Arabia's National Commercial Bank.

"The introduction of Aramco will be a major event that will pull the attention of investors towards this market and bring liquidity to the kingdom," said Christopher Dembik, of Saxo Bank.

"Envisaging this possibility is also proof that the (oil) price war constrains in an exacerbated way the country's finances and it's ability to invest in the petroleum sector."