Saudi Arabia approves listing of energy giant Aramco

Daniel Fowler
November 6, 2019

Saudi Aramco aims to go public on the Riyadh stock exchange in December, in what would be the world's biggest initial public offering worth $2 trillion won, twice the market capitalization of the world's largest company Apple Inc.

An announcement from the kingdom's Capital Market Authority announcing its approval for the share sale served as a starting gun for an IPO promised by Crown Prince Mohammed bin Salman since 2016.

Ellen Wald, author of "Saudi Inc.", said that listing on the domestic market without any plans for an global offering was risky because it could "completely overweight" the local market.

Plans call for the firm to later put other shares on a foreign exchange.

But those dry-as-dust business phrases have kicked off a process that could transform the lives of Saudi Arabia's citizens and residents, the global energy industry and the world of high finance. He also stressed Aramco's "disciplined financial approach and prudent and flexible balance sheet".

"I'm feeling nervous about the IPO, I grew up planning for my kids to live the life I experienced in Aramco and I'm anxious that with the IPO it won't be the Aramco that we know". That figure, based on a $2 trillion valuation of the company now seen as unrealistic, may not be reached but even so it it is likely to be the biggest share market offering of all time.

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

Confirmation of the share sales comes just weeks after Saudi Aramco's oil facilities were attacked and lost about $2bn in crude oil production, according to reports.

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"Certainly Aramco is much more transparent that they have ever been, but whether we are going to see the financials with full clarity is an open question", Lebow told AFP. The price at which all subscribers in the offering will purchase shares (the "Final Offer Price") will be determined at the end of the book-building period.

The regulator did not provide any immediate time frames but, citing sources, Al Arabiya reported last week that the company would list on the Saudi Stock Exchange on December 11th. The channel is believed to have close links to the kingdom's Al Saud royal family.

Saudi Aramco traces its roots to 1933 when a deal was struck between Saudi Arabia and the Standard Oil Company of California, which later became Chevron, to survey and drill for oil, creating a new firm to do so. It said Aramco had a net income of $111.1 billion in 2018 and proven liquid reserves of 226.8 billion barrels.

In 1973, with prices spiking at the peak of the Arab oil embargo - imposed against the U.S. over its policy on Israel - the Saudi government acquired 25 percent of Aramco to increase its share to 60 percent and become a majority stakeholder.

The kingdom has in the past used the company as a piggy bank for development companies, back when it was still an American company.

Many of these potential investors will be big Saudi investment groups (banks, insurance companies or pension funds) that already buy and sell on a daily basis on Tadawul.

Aramco has not stated when or how much of the company it would sell, but Reuters reported sources state the oil company could offer 1-2% of its shares on the local bourse, raising as much as US$20-40 billion. For the first half of 2019, it posted a net profit of $46.9bn, nearly all of which was paid out in dividends to the Saudi state.

In the section titled "IPO Retail Incentive Arrangement", the document sets out the benefits that people living and working in the Kingdom can expect. According to financial analysts, it is worth a whopping $1.2 trillion.

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