To List or not to List? – National Oil Company IPOs
Since 2016, Saudi Aramco, the world’s largest oil-producing company has been in the media spotlight over the potential Initial Public Offering (IPO) of a percentage of the company. The value estimates mentioned (up to US$2 trillion) of only a small portion of the company (5%) highlights the potentially high value of National Oil Companies (NOC). The Aramco situation opens up some key questions for the Asia Pacific based NOCs including:
- Who is already listed?
- What are the advantages of an IPO?
- What are the negatives?
- Who may list?
Around the globe NOCs have been partially listed on domestic and foreign stock exchanges, with the majority from Europe. In Europe, Equinor is a prime example of a partially listed NOC, with 67% of the company owned by the Norwegian Government and the remainder publicly owned through the Oslo Stock Exchange and New York Stock Exchange. Due to the controlling stake, the company is managed by the Norwegian Ministry of Petroleum and Energy.
In Russia, both Rosneft and Gazprom are majority-owned by the Russian government. Both companies are listed on the Moscow Exchange and the London Stock Exchange, with Gazprom, also listed in Germany. The Russian government owns approximately 50% of both Rosneft and Gazprom, and observers potentially identify these companies as not only providing a source of revenue but also supporting the strategic energy interests of the Russian government.
Other European NOCs listed on European stock exchanges include:
- OMV Group – Austria
- ENI – Italy
- Total – France
- MOL Group – Hungary
- Galp Energia – Portugal
In Asia, the Chinese State-Owned Enterprises (SOE) have led the way with IPOs on a number of exchanges. All of the three main SOEs – CNPC, Sinopec and CNOOC – have subsidiaries listed on the Hong Kong Stock Exchange (HKEX), New York Stock Exchange (NYSE) and the Shanghai Stock Exchange (SSX). The ownership of these subsidiaries by their parent companies is typically above 60%1.
There are no other listed NOCs in the Asia Pacific region, but there are a wide range of national petroleum companies that vary in size depending on the level of oil and gas development in the country.
So why would a NOC list on a stock exchange? One reason is to access fundraising opportunities that would otherwise not be available. Larger established NOCs with producing projects often raise low-cost finance through bond markets. However, stock markets can provide an alternative source of funds, especially for companies with less mature portfolios. Stock markets can provide greater liquidity than bond markets and global stock exchanges offer a range of different geographical options in different economic marketplaces.
For some NOCs, introducing funding from another source can free up state resources that would otherwise be used to support petroleum industry investment. Alternatively, a government with a material petroleum industry and a highly valued NOC may seek to monetise the company through an IPO to fundraise for other investments, including economic diversification.
Listing of a part or the whole of a company increases the need for transparent reporting under the requirements of the stock exchange. This transparency provides investors and the remainder of the marketplace increased information about the company’s performance, which can result in improved valuation. Further, greater scrutiny may inspire management and employees to increase company performance.
Finally, an IPO by a large, national-champion company can be beneficial in promoting not only the company but also the country. Successful listing could be a door opener to further investment and lead to an influx of foreign funds. Alternatively, the local listing could provide endorsement for a regional stock exchange which may further boost local investment.
There are a number of reasons why a NOC may not list. In terms of fundraising, the company may already have ready access to capital for investment or acquisitions. This may be through international bond markets or large domestic institutions.
Increased reporting requirements from a stock exchange may open the company up to greater examination from outside investors or analysts. A result of lower company value could be an increase in financing costs, impacting company profitability. Financial institutions and rating agencies will, of course, take heed of any commentary by investors or analysts in the market and this will impact the cost the NOC pays to raise funds.
Alternatively, some countries view petroleum resources as the state’s alone and are not willing to open up these to outside parties. A listing can also reduce governmental control of a NOC. Depending on the political situation the government may wish to retain firm control of the NOC and command the direction of the country’s hydrocarbon policy.
Cultural change associated with increasing scrutiny can also cause issues. Significant push-back may come internally against an IPO if it is seen to be increasing pressure on company employees.
Lastly, for smaller NOCs, the cost of an IPO may be too large. Hiring outside financial advisory to consult and implement an IPO may be proportionally too high for a small nation with limited resources.
It would be surprising to see any of the large regional NOCs outside of China IPO in the next 5-10 years, as they appear satisfied with the status quo. It is also unlikely that smaller NOCs will list due to the current cost.
However, in the long term as regional economies grow further there may be the potential for partial listings of company subsidiaries to access capital and enhance liquidity. This may be to promote investment in specialized industry areas such as unconventional resources or to raise funds for greater economic diversification.