Saudi Arabia's Aramco has endured a complicated and twisted path to its IPO, and questions remain whether it will be successful. The kingdom is undertaking this offering as part of its efforts to diversify its economy from oil. The considerable funds generated from the IPO are integral to achieving the aims of Crown Prince Mohammad bin Salman's (MBS) Vision 2030 program to modernize Saudi Arabia and prepare the country for a post-oil future.

Of course, the Saudi Aramco IPO has implications for capital markets and investment banks given its more than trillion-dollar valuation. It will also impact energy markets, especially if the company becomes more responsive to market forces. The IPO process will also bring transparency to a state-run company which has made Saudi insiders lavishly wealthy.

IPO Discussions Begin

In early 2016, the Crown Prince kicked off speculation as he mentioned listing a part of the company and making it open to international investors. Later in the year, MBS clarified that they would be listing 5% of the company at a record $2 trillion valuation. By the end of the year, Aramco had received clearance from Saudi authorities to proceed and began interviewing investment banks to list and sell their shares. The company also increased output during this year to increase market share.

It eventually selected JPMorgan (JPM  ), Morgan Stanley (MS  ), and HSBC (HSBC  ) as its international advisors and decided to list locally and abroad in the second half of 2018. Into 2018, the company faced a series of setbacks related to lower oil prices, Jamal Khashoggi's murder, a $69 billion purchase of a chemicals company, difficulty in providing the necessary amount of transparency, and attacks on its facilities.

Smaller Ambitions

As a result, the company pushed back its plans and scaled lower its IPO plans. Instead of listing 5% of the company, it started with selling 0.5% of the company primarily to local Saudi investors. And selling more as liquidity increases. Although its well-shy of its original ambitions, demand for the offering was strong with the order book oversubscribed.

Currently, plans for an international listing don't seem imminent given the increased regulatory burden. Instead, Aramco is focused on measures to boost oil prices, ensuring that the first few months of the IPO will go smoothly.

Reasons Behind Failure

MBS calling for Aramco to be valued at $2 trillion is one major factor why Aramco hasn't been able to IPO at scale. This number proved to be too exorbitant. Even though investment bankers and exchanges were desperate for the business, they weren't able to generate enough interest at these prices. Of course, the task was complicated by a raft of headlines in 2018 which highlighted the difficulties of doing business with an autocrat-backed company.

In the end, a valuation was lowered by 15%, and the 5% target has moved down to somewhere between 1 and 2%.