Daily Management Review

Saudi Arabia Announces Much Awaited IPO Of Aramco


Saudi Arabia Announces Much Awaited IPO Of Aramco
A formal announcement for the much awaited initial public offering (IPO) by Saudi Arabia's giant state oil company was made finally on Sunday. Touted to be the largest ever IPO of the world, the company said it would be floating a part of its stocks on the domestic stock exchange as the kingdom attempts to move its economy away from dependency on oil exports. 
However very few specifics about the number of shares that would be put up for be sale, the pricing per share or the date for a launch was revealed in the long awaited announcement by the most profitable company in the world.
There is also some debate about the total value of the company. While Saudi Crown Prince Mohammed bin Salman had valued the company at $2 trillion almost four years ago when the idea was floated, a more modest valuation of about $1.5 trillion has been proposed by bankers appointed for the company as one that would be more likely to be acceptable by investors.
Further, the statement also did not mention anything about increased security measures taken by the Aramco for its assets following the attack in September at two its installations. 
According to reports quoting sources with knowledge of the thinking within the company, it is likely that just about 1-2 per cent of the total stocks of the company would be offered to the public by the company. Aramco is aiming to raise anything between $20 billion and $40 billion through the IPO. If the company manages to raise more than $25 billion, it would surpass the highest IPO valuation ever by the Chinese e-commerce giant Alibaba in 2015.
"Today is the right opportunity for new investors to reap the benefits of Aramco's ability to achieve value, and boost it on the long-term," Aramco Chairman Yasir al-Rumayyan told a news conference at the company's headquarters in the eastern city of Dhahran.
He said that after discussions with investors over the next 10 days, officials of the company would then iron out the details relating to the interest rates and the price range.
Saudi Arabia hopes that the huge money that it is aiming to raise from the IPO would help the kingdom to fund projects to build up non-energy industries and create revenue generating streams other than oil for the country.
The company will later decide on when and how to make an international listing of its stocks, Rumayyan said without giving any time frame for it.
"Selling a small piece of Aramco in a captive market gives the KSA (Kingdom of Saudi Arabia) more control to prop the value of Aramco up over its fair value," said Gary Ross, CEO at Black Gold Investors.
The company said on Sunday that between 2016 and 2018, it produced one in every eight barrels of crude oil produced globally. The company recently also made public its finances to showcase its financial strength before the IPO. For the third quarter of the current year, with a net income of $21.1 billion, it not only became the most profitable comp-any thee oil sector – with its closest rival Exxon Mobil Corp reporting profits of just over $3 billion, it also surpassed profits for all other companies in the world to be judged the most profitable company in the world.