Aramco IPO Is Just the First Step for Saudi Arabia

Analysts and journalists appear fascinated by Saudi Arabian Oil Co.'s valuation. In the recent past, estimates have ranged from $400 billion to $2 trillion. The company’s real market value will be known when the initial public offering takes place. Countless times, analysts have tried to value companies, especially as they seek privatization, only to find out the true worth when companies are sold to the market. There are two important questions regarding Saudi Aramco: Why is the company, yet again, being privatized, and what will have to happen?

Reform starts at the core: Change begins with the “crown jewel” rather than anything else. The IPO can’t be disentangled from the larger goal of the economic and social transformation of Saudi Arabia. That is not easily achieved as markets have a way of rewarding and punishing economies. So far, Saudi Arabia has been winning on whetting investors' appetite. Among investment bankers, there is really one, at best two, countries that are being discussed within emerging markets: Saudi Arabia, trailed by a long distance by Russia. The Gulf kingdom has managed to make its reform agenda be the main issue of discussion in all powerful corporate boardrooms. Transforming Saudi Aramco into a more transparent company, though its merits might be debated by some, is still worth undertaking as part of this transformation process.