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Will Japan Turn Its Back On The Aramco IPO?

Japan Aramco IPO

Japanese firms will probably stay away from the world’s biggest initial public offering (IPO) ever as they are concerned about the valuation of Saudi Aramco and its lack of transparency, the president of the largest Japanese oil refiner said on Friday.  

Saudi Arabia’s oil firm Aramco is an important crude oil supplier to Japan, holding more than a third of Japanese imports.

Yet, Japanese investors are unlikely to jump into the listing of the Saudi oil giant because they have to explain to their shareholders why they consider investing in Aramco’s IPO a good idea, Tsutomu Sugimori, president at Japan’s largest refiner JXTG Holdings, said at an earnings call.

“We don’t know about Aramco’s crude oil reserves and how their contracts with the Saudi royal family work and so on. Aramco will need to disclose this information, but it is not clear how open Aramco will become,” Reuters quoted Sugimori as saying.

Japanese investors will probably steer clear of Aramco’s IPO despite the fact that Saudi Arabia holds a significant share of Japan’s crude oil imports.

Saudi Arabia held a 44-percent share of Japanese crude oil imports between November 2018 and April 2019, according to IHS Markit. This share, however, is expected to have declined to 35 percent over the past six months, including October 2019.  Related: NYU Professor: Tesla Could Lose 80% Of Its Value

While Japan is snubbing Aramco’s IPO, another big Asian buyer of Saudi crude, China, could be the one to invest in the listing and help ensure it is a success.

Earlier this week, Bloomberg reported that various Chinese state-held companies and funds are negotiating possibly investing up to US$10 billion in Aramco’s initial public offering.   

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

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