$500 billion new Saudi city to be listed publicly, Aramco IPO on track, crown prince says

REUTERS
RIYADH
Published 26.10.2017 13:13
Updated 26.10.2017 13:26
In this photo released by Saudi Press Agency, Crown Prince Mohammed bin Salman (center left) and IMF Managing Director Christine Lagarde (R) attend the opening ceremony of Future Investment Initiative Conference in Riyadh, Oct. 24, 2017. (AP Photo)
In this photo released by Saudi Press Agency, Crown Prince Mohammed bin Salman (center left) and IMF Managing Director Christine Lagarde (R) attend the opening ceremony of Future Investment Initiative Conference in Riyadh, Oct. 24, 2017. (AP Photo)

The $500 billion mega-city planned by Saudi Arabia will be floated on financial markets alongside oil giant Saudi Aramco as part of the kingdom's drive to diversify away from oil, the crown prince told Reuters in an interview late on Wednesday.

The 26,500-square km (10,230-square mile) business and industrial zone, named NEOM, will extend into Jordan and Egypt. It was unveiled on Tuesday at a three-day international investment conference.

The surprise announcement is the latest - and most extraordinary - in a slate of privatization programs led by the floating of oil giant Saudi Aramco. The sales are designed to boost the Saudi economy and create jobs for millions of young people.

"The first capitalist city in the world ... this is the unique thing that will be revolutionary," Crown Prince Mohammed bin Salman said.

"Without a doubt, at the end of the day NEOM will be floated in the markets. The first zone floated in the public markets. It's as if you float the city of New York."

The 32-year-old spoke on the sidelines of the Future Investment Initiative conference, which has attracted nearly 4,000 delegates from around the world to Riyadh this week.

Switching between English and Arabic, sometimes in the same sentence, the prince seemed most excited discussing his plans for the new city.

Adjacent to the Red Sea and the Gulf of Aqaba and near maritime trade routes that use the Suez Canal, the zone will serve as a gateway to the proposed King Salman Bridge, which will link Egypt and Saudi Arabia.

NEOM will be fully owned by Saudi Arabia's sovereign Public Investment Fund (PIF) until its listing, and will attract investments from companies in renewable energy, biotechnology, advanced manufacturing and entertainment, the PIF has said.

"It won't be listed in the markets until the idea is mature enough," Prince Mohammed said. "It might be after 2030, it might be before, but the idea and the strategy is to float it eventually."

The new city will not follow the rules and regulations enforced in the rest of Saudi Arabia, which imposes sharia law based on a strict Wahhabi interpretation of Islam.

It will offer residents a more liberal lifestyle, allowing musical concerts and entertainment in a remote corner of the desert kingdom. The country has already started to relax some long-standing rules, including what was an effective ban on women driving.

He said the name mixed "neo", meaning new, with M, the first letter of the Arabic word for future.

The new city is part of the crown prince's ambitious Vision 2030 plan to overhaul the economy of Saudi Arabia, OPEC's largest producer, and provide jobs for an overwhelmingly young population amid a global oil price decline since 2014.

Economic growth has slowed and the economy may shrink this year as the government introduces austerity measures.

"The idea is not to restructure the economy as much as to seize the opportunities available that we didn't address before. We have high capacity and we use only a little."

Prince Mohammed became next in line for the throne in June after the king, his father, removed a more senior prince from the succession. He has pledged to transform Saudi Arabia economically and socially.

"Vision 2030 is about a lot of big opportunities, so Aramco is one of them, NEOM another opportunity ... We have a lot of huge projects we will announce in the next few years."

He said PIF would generate higher returns than other big investment funds.

Aramco IPO on track for 2018

Prince Mohammed also said the Saudi Aramco IPO was on track for next year, dismissing reports of delays, adding it could be valued at more than $2 trillion.

Saudi officials have said domestic and international exchanges such as New York, London, Tokyo and Hong Kong have been looked at for a partial listing of the state-run firm.

A decision on which exchange would secure the offering has still not been made, fueling market speculation that the IPO could be delayed beyond 2018 or even shelved, amid growing concerns about the feasibility of an international listing.

The sale of around 5 percent of Aramco next year is a centerpiece of Vision 2030, an ambitious reform plan to diversify the Saudi economy beyond oil which is championed by Prince Mohammad.

"We are on track in 2018... but the listing (details) are still under discussion," Prince Mohammad told Reuters in an exclusive interview on Wednesday in Riyadh for release on Thursday. "It will be IPO-ed in 2018."

The crown prince declined to discuss specific details of the IPO, which could be the biggest in history and is expected to raise as much as $100 billion.

Prince Mohammad, 32, has sweeping powers over defense, energy and the economy and is expected to take the final decision about Aramco's listing venue and the other reforms.

Investors have long debated whether Aramco could be valued anywhere close to $2 trillion, the figure announced by the crown prince, who wants to raise cash through the IPO to finance investments aimed at helping wean the world's biggest oil exporting nation off its dependency on crude.

But Prince Mohammad reiterated on Wednesday that Aramco's estimated valuation would be about $2 trillion.

"I know that there has been a lot of argument around this topic but at the end of the day the right say is that of the investor. Undoubtedly the biggest IPO in the world must be accompanied by a lot of rumors," Prince Mohammad said.

"Aramco would prove itself on the ground on the day of the IPO. Actually when I talked about the valuation, I talk about $2 trillion, it could be more than $2 trillion."

The timing of the IPO will depend on getting legal and regulatory approval from the jurisdictions it opts to list in, industry sources had said. It could also be influenced by the oil price - currently below $60 per barrel - a price Saudi officials have identified as a good level.

Qatar and Yemen

Prince Mohammed said Saudi Arabia's dispute with neighboring Qatar had not affected investment.

"Qatar is a very, very, very small issue," he said.

Saudi Arabia and three Arab allies cut diplomatic and transport ties with Qatar earlier this year over accusations Doha supported "terrorist groups." Qatar denies the allegations.

Prince Mohammed said the kingdom's war in Yemen would continue in order to prevent the Houthi armed movement from turning into another "Hezbollah" on Saudi's southern border.

"We're pursuing until we can be sure that nothing will happen there like Hezbollah again, because Yemen is more dangerous than Lebanon," he said.

Hezbollah, armed and backed by Iran, has become a formidable force in Lebanon and Syria. The Houthis also reportedly receive arms and training from Iran, Saudi Arabia's arch-rival.

Yemen's location was crucial, said Prince Mohammed. "It's next to Bab al-Mandab so if something happens there, that means 10 percent of world trade stops," he added, referring to the strait at the southern end of the Red Sea.

"This is the crisis."

Oil prices and OPEC relations

OPEC kingpin Saudi Arabia is leading OPEC and other oil producers such as Russia to restrict oil supplies under a global oil pact to drain global inventories and boost oil prices.

"We are committed to work with all producers, OPEC and non-OPEC countries, we have a great and historic deal... We will support anything to stabilize the oil demand and supply," Prince Mohammad said when asked whether the kingdom would support extending the agreement beyond March 2018 when it is due to expire.

"I think now the oil market (absorbed) the shale oil supply, now we are regaining things again."

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