FILE PHOTO: A view shows Saudi Aramco's Abqaiq oil facility in eastern Saudi Arabia in this undated handout photo. Saudi Aramco/Handout/File Photo via REUTERS ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY.
Oil prices have risen and will cause some ripples on headline inflation © Reuters

Saudi Arabia has issued a series of legal instructions to prepare its state energy giant Saudi Aramco for a planned 2018 initial public offering, which is set to be the largest ever.

An official announcement from the government on Friday said the kingdom had changed Saudi Aramco’s status to a joint-stock company as of January 1. This will enable it to issue shares and be regulated like other companies.

The government also said Saudi Aramco would have a board of 11 members, with six nominated by the state. It also provided some clarity on the future relationship between the kingdom and its largest revenue earner.

Although some concrete steps have been made towards an IPO, big questions remain about the kingdom’s willingness and readiness to list the company internationally. A decision on any foreign listing has yet to be made.

Saudi Aramco’s board at present has nine members. Six of them are senior Saudi officials, including Khalid al-Falih, the minister of energy, industry and mineral resources; Yasir al-Rumayyan, who heads the kingdom’s Public Investment Fund; and Amin Nasser, chief executive of Saudi Aramco.

It also has three independent members: Mark Moody-Stuart, former chairman of Shell; Peter Woicke, a former managing director of the World Bank; and Andrew Gould, former chairman of energy company BG Group and former chief executive of oil services company Schlumberger.

Selling 5 per cent of Saudi Aramco in a stock market flotation is a cornerstone of Crown Prince Mohammed bin Salman’s ambitious plan to reform the economy. He believes the company could be worth as much as $2tn although industry analysts value it at a lower level.

Saudi Arabia intends to list shares on the domestic Tadawul stock exchange. It is also considering a listing abroad, with New York, London and Hong Kong among the stock markets in contention. A private sale is another option that is being weighed.

According to the announcement, the government would remain “solely responsible” for the kingdom’s production levels and had the “exclusive right” to make output decisions based on economic development, national security and foreign policy.

Saudi Arabia is the de facto head of the Opec cartel, and the government announcement confirms what ministers have been saying in private for the past two years — that the kingdom will retain sovereign decision-making power. A separate notice said the energy ministry would propose the mechanism that allows the state to exercise its rights as majority shareholder.

Still, the notice says that the IPO will comply with Saudi stock exchange regulations and any international listing rules.

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