Saudi Arabia starts IPO of state-run oil giant Aramco

Saudi Arabia has formally announced the start of its initial public offering (IPO) of the state-run oil giant Saudi Aramco.

The move will see a sliver of the company offered on a local stock exchange in hopes of raising billions of dollars for the kingdom.

An announcement on the kingdom’s Capital Market Authority’s website early on Sunday served as the starting gun for an IPO which had been promised by Crown Prince Mohammed bin Salman since 2016.

Initial plans call for the firm’s shares to be traded on Riyadh’s Tadawul stock exchange, then to later put other shares on a foreign exchange.

Mohammed bin Salman visit to UK
Crown Prince Mohammed bin Salman first promised the Aramco IPO in 2016 (Yui Mok/PA)

Prince Mohammed hopes for a very-optimistic 2 trillion US dollar (£1.5 trillion) valuation for Aramco, which produces 10 million barrels of crude oil a day and provides some 10% of global demand.

That would raise the 100 billion dollars (£77.3 billion) he needs for his ambitious redevelopment plans for a Saudi Arabia hoping for new jobs, as unemployment stands at more than 10%.

However, economic worries, the trade war between China and the US and increased crude oil production by America has depressed energy prices.

A September 14 attack on the heart of Aramco had already spooked some investors, with one ratings company already downgrading the oil giant.

The announcement by the Capital Market Authority offered no timeline for the IPO.

“The Capital Market Authority board has issued its resolution approving the Saudi Arabian Oil Co application for the registration and offering of part of its shares,” the authority said in its statement. “The company’s prospectus will be published prior to the start of the subscription period.”

The Saudi-owned satellite channel Al-Arabiya reported last week, citing anonymous sources, that pricing for the stock will begin on November 17. A final price will be set on December 4, with shares then beginning to be traded on the Tadawul on December 11, the channel reported. The channel is believed to have close links to the kingdom’s Al Saud royal family.

The kingdom has in the past used the company as a piggy bank for development companies, back when it was still an American company. Since buying a 100% interest in the firm by 1980, the royal family as its sole “shareholder” largely has not interfered in the company’s long-term business decisions as its revenue provides around 60% of all government revenue.

But recently, there have been decisions seemingly forced onto Aramco, including the nearly 70 billion dollar (£54 billion) purchase in March of the petrochemical firm Saudi Basic Industries Corp just before SABIC announced a plunge in its quarterly profits.

In Aramco’s first-ever half-year results, it reported income of 46.8 billion (£36.2 billion). Yet analysts say a 2 trillion dollar valuation – Apple and Microsoft separately for instance are 1 trillion- — may be a stretch.

By announcing the start of the IPO on Sunday, Prince Mohammed may have been convinced to take a lower valuation in order to get the IPO moving. The kingdom is likely to be pinning its hopes on tremendous local interest to push up the company’s valuation before potentially taking some of the stock abroad.

Saudi Arabia Investment Forum
Participants at the Future Investment Initiative forum on October 29 follow the news about the long-planned IPO of state-run oil giant Saudi Aramco announced by a satellite news channel (Amr Nabil/AP)

Analysts believe Aramco will list as much as 3% of the firm on the Tadawul, with another 2% put abroad.

Saudi Aramco has sought to assure investors, given the questions over its valuation and the potential hazards of future attacks or geopolitical risk.

A presentation posted pm Aramco’s website last month announced the intent to offer a 75 billion dollar (£57.9 billion) dividend for investors in 2020.

It also pledged that from 2020 to 2024, any year with a dividend under 75 billion dollars would see “non-government shareholders” prioritised.

But beyond the stocks, worries persist that Saudi Arabia could be hit by another attack like the one on September 14, which the US blames on Iran.

Iran denies it launched the cruise missiles and drones used in the attack.

Yemen’s Houthi rebels claimed responsibility, but analysts say the weapons used would not have the range to reach their targets.

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