A Saudi Arabian Oil Co. (Aramco) logo sits on an electronic display at the company’s corporate pavilion during the 22nd World Petroleum Congress in Istanbul, Turkey. (Photographer: Kostas Tsironis/Bloomberg)

Saudi Aramco's IPO Just Lost World's Largest Equity Investor

(Bloomberg) -- Selling the world’s largest initial public offering wasn’t going to be easy. For Saudi Arabia, the mission just got a lot more complicated: the Aramco IPO won’t have the support of the biggest equity investor.

Norway’s $1 trillion sovereign wealth fund has proposed dumping all its oil and gas stocks -- roughly $35 billion -- to diversify away from energy. The Nordic nation is one of the world’s top oil producers and its fund invests heavily in energy, owning large chunks of Big Oil as well as stakes in major state-controlled companies including Petrobras of Brazil and Sinopec of China.

The exit, if backed by the government, will create two problems for the Saudis. First, it eliminates a potential cornerstone investor either ahead of the IPO or during its book-building. With Riyadh hoping for a valuation of $2 trillion -- and raising $100 billion selling a 5 percent stake -- Aramco will need every investor it can get. Second, it’s likely to embolden those who view oil companies as potentially stranded assets that should be avoided. That, in turn, could reduce the appetite among Western pension funds to buy into the IPO.

“The divestment movement just got some new juice,” said Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University.

Interestingly, Norway is, in effect, following the path of Saudi Arabia: Riyadh is also selling Aramco in an effort to diversify its economy away from oil, planning to invest the proceeds in other industries.

Aramco declined to comment. The company has hired JPMorgan Chase & Co., Morgan Stanley, HSBC Holdings Plc, Moelis & Co. and Evercore Inc. to advise on the IPO. Independent Wall Street rainmaker Michael Klein is advising the oil ministry on the privatization.

©2017 Bloomberg L.P.

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