Saudi Aramco's Disappointing IPO Discourages Mexican Oil Giant Pemex From Going Public
The Saudi oil company's value will be lower than first estimated, the challenges it faced could be replicated by State-owned Pemex.

Several key players from the energy sector have flirted with the idea of Mexican State-owned company Pemex being listed on the stock market, but the recent experience of Saudi Aramco could predict the possible outcome for the Mexican company, and the challenges and complications it might face.

On Thursday Saudi Aramco, the world's largest company, will make its debut on the Riyadh stock exchange but its valuation remains well below what Prince Mohammad bin Salman estimated, which was close to 2 trillion dollars. At the beginning of the placement process the market estimated that it would be closer to a trillion dollars.

The registration process closed last November 28 with the sale of $12.6 billion dollars, which means just over 0.5% of shares of the company.

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The IPO of the Saudi oil giant was hindered by low oil prices, the climate crisis and the geopolitical risk, elements that were attractive for shareholders interested in buying a stake in the partial privatization of Saudi Aramco.

But other factors also hit it, reminding us of the challenges that Pemex would face if it wanted to go public. For example, this company has also been accused of a lack of transparency in its governance, an problem during past administrations in the Mexican case. Pemex CEO Octavio Romo has yet to prove this problem is in the past.

High production and operating costs that end up hitting the oil company are another issue. In the case of Pemex, high debt prevented it from investing in oil production for many years. Part of this debt is explained by labor liabilities.

Aramco also had security problems. In September, the company suffered a terrorist attack at the heart of its refinery process, which had consequences in the global energy sector, impacting crude oil prices.

Pemex, for its part, was recently attacked by cyber pirates. According to Energy Secretary, Rocío Nahle, the hackers hijacked important information and demanded 5 million dollars. The Mexican government declined the offer.

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The idea of Pemex going public took off at the end of Enrique Peña Nieto's Presidential term. The then Hydrocarbons Commissioner Juan Carlos Zepeda, put this idea forward at a meeting in London. Then Pemex CEO Carlos Treviño, echoed the proposal. In his opinion, it was the only way to rescue the indebted oil company. Previous attempts to partner Pemex with private companies were not enough to reduce the critical financial situation.

During the transition from the Peña Nieto administration, Octavio Romero was flirting with the idea of following the Chinese model, which has the particularity of allowing access to share capital by some of its national oil companies.

For now, however, the clear bet continues to be to explore shallow fields with financial support from the State, as well as consolidating their refineries. 

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