Saudi Arabia officially approves Aramco oil IPO

Andrew Cummings
November 6, 2019

"A quick study of the energy companies with a market capitalisation higher than $100 billion will show that the median PE (price to earnings ratio) as well as dividend yield are 16.44 and 4.8% respectively".

Aramco said the IPO would be split into two tranches: one each for institutional and individual investors.

Less optimistic estimates set the valuation at $1.5 trillion, but in that case Aramco would still be worth at least 50 percent more than the world's most valuable companies like Microsoft and Apple, according to Reuters.

Sources have said Aramco could offer 1%-2% of its shares on the local bourse, raising as much as $20 billion-$40 billion.

This is a significant gap, which could fit the market capitalizations of the world's 3 largest publicly listed energy companies - Exxon Mobil Corp., Royal Dutch Shell Plc, and Chevron Corp - inside it.

The energy behemoth generated the most profit of any corporation past year with net income of $111 billion - more than Apple Inc., Google's parent Alphabet Inc. and Exxon Mobil Corp. combined.

The state-owned oil giant will determine the IPO launch price after registering interest from investors.

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

Saudi Arabia is keen to sell shares in its state oil firm because it is trying to reduce its reliance on oil.

The company employed 76,000 people worldwide in 2018 and had reserves of around 260.2 billion barrels of oil in 2017.

"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 on Sunday at the company's headquarters in the eastern city of Dhahran.

The announcement begins a sprint for Aramco's bankers, pulled from top firms such as Goldman Sachs (GS), Morgan Stanley (MS), Citi (C), JPMorgan Chase (JPM) and HSBC (HSBC).Shares could start trading in early December, according to recent media reports.

Market experts say it is part of efforts to bolster its network in the Middle East via an investment in Saudi Arabia's major corporate names.

"It is a colossal public offering that could potentially generate more than 10 years' worth of proceeds raised through IPOs in the country", said Salah Shamma, head of investment at Franklin Templeton Investments. The original plan to list Aramco in either NY or London has been dropped in favour of a Riyadh-only flotation for now. Riad denies the charges. "Aramco also has limited control in output policy, a key part of Saudi Arabia's Opec management".

Uncertainty will still hang over the IPO process in the coming weeks.

The launch, approved by regulators, forms the lynchpin of Prince Mohammed's ambitious plans to steer the economy away from oil by pumping tens of billions of dollars into a host of megaprojects and non-energy industries. "It feels like home", Naif Ghofaily, an Aramco employee in his 30s, told AFP.

"International investors will pay close attention to how Aramco performs on the national stock market, especially in the absence of firm details about the global portion of the eventual dual quote".

After years of delay, Aramco said it plans to sell an unspecified number of shares on the Riyadh stock exchange, calling it a "historic" milestone for the world's most profitable company which pumps 10 percent of the world's oil.

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

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