Matters are slowly, and cautiously, being clarified in the run-up to the record-breaking initial public offering (IPO) of Saudi Aramco, which will be the world’s biggest stock market flotation when it eventually debuts on global exchanges. The plan is still to get the shares — up to $100 billion worth of them — away by the end of next year, but there is a lot to do between now and then. There has not been much said publicly by the company since the publication of its annual review a month ago, but behind the scenes the army of policymakers, advisers and consultants involved in the IPO preparation are working hard to get through the “to do” list. The issue that has hogged the headlines for the past few weeks has been: New York or London? The two biggest markets in the Western world have made no secret of their desire to get Aramco on their trading boards, and London in particular has shown a willingness to be “flexible,” to the extent that some in the investment community have shouted “special treatment.” New York, on the other hand, is calmly pointing to the fact that it is the biggest stock market in the world, and if it is liquidity Aramco wants, where better to get it than among its peer group of quoted oil giants? The debate seems to be crystallizing between those advisers who are worried about the levels of disclosure required by the New York regulator, the Securities and Exchange Commission, as well as by the risk of litigation from Manhattan’s voracious lawyers; and those who are taking a geo-strategic view of the IPO. In the end, of course, the owners will decide. Underlying the debate about the venue is a broader discussion of value, which was estimated early on in the process at some $2 trillion. That was based on the huge reserves the Kingdom owns and which Aramco manages, and which have been the subject of some speculation ever since. Some critics say that is too much, even for a company that stands out as an efficient and hyper-profitable feature of the Kingdom’s corporate scene. But the valuation has been slowly ticking up, and most independent experts now put it around $1.5 trillion. So how can the Kingdom persuade international investors to go that extra mile to get it to the official estimate? The change in the oil tax regime in spring was a boost for the valuation, with the Kingdom exchanging tax for future dividend stream and lifting the earnings investors can expect at the same time. There is currently much discussion about the royalty structure of Aramco, which could also affect the valuation. But there are two other matters under consideration that will have a more immediate affect. One — and probably the more advanced — is an independent audit of reserves in Saudi Arabia. Two respected American assessors have been hired to produce a definitive and transparent estimate of the vast wealth beneath the sand and the sea, and must be getting pretty close to the end of their work. Gaffney, Cline & Associates, part of the oil-services business owned by the giant US conglomerate GE, and Dallas-based DeGolyer and MacNaughton are looking at the reserves level with a fresh eye. For years, Aramco has given its official reserves as around 260 billion barrels, the second biggest in the world after trouble-torn Venezuela (which will not be optimizing production or exports any time soon.) Other estimates put it marginally higher or lower, but if the two independent firms now working on the matter come up with something significantly higher, that should be immediately reflected in an upward tick in the valuation. The other question of extreme interest at the moment is the matter of energy subsidies. Aramco, conscious of its historic role as the fountain of the Kingdom’s well-being, supplies cheap energy to consumers and industries in Saudi Arabia, though it has never officially calculated the value of these subsidies. To be judged alongside its international peers, and to maximize profits, it will have to show that it is playing by normal market rules. That will require adjustments. Some progress has been made in curtailing subsidies in the Kingdom, but it is a sensitive issue for both domestic and industrial customers. It is a matter to which senior policymakers are giving the most serious consideration. If the subsidies issue is resolved successfully, it could make a difference of hundreds of billions of dollars to the IPO valuation. Reserves and subsidies are the two biggest factors still to be decided in the run up to producing an official document announcing Aramco’s intention to float its shares on stock markets. The other essential element of the strategy — of highlighting its role as an integrated energy and chemicals company — is well advanced and understood by potential investors. Once those issues are resolved, the starting flag can truly be waved on the biggest IPO in history. Published in Daily Times, August 21st , 2017.