Saudi Aramco kick-starts what could be world's biggest IPO

Saudi Arabia’s long-awaited sale of shares in the state-owned oil giant, Aramco, was formally announced yesterday, in what is expected to be the largest Initial Public Offering (IPO) in history. Investors will have the chance to own a small fraction of the world’s most profitable company, which Riyadh has valued at $2 trillion.

The high valuation is one reason why the estimated one to two per cent sale of what many say is the kingdom’s crown jewel has been delayed, since intention to sell shares in the company was announced in 2016 by Crown Prince Mohammed Bin Salman. The initial floatation was expected in 2017 giving Riyadh much needed financial boost to the kingdom’s modernisation programme known as Vision 2030.

With more serious analysts placing a more realistic evaluation of $1.5 trillion and the kingdom becoming embroiled in a series of crises, in particular the murder of Saudi journalists Jamal Khashoggi which several intelligence agencies say was authorised by the crown prince, forcing Riyadh into the embarrassing situation of cancelling the IPO.

September’s attack on Saudi oil facilities by Houthi rebels also dented investor confidence. The attack halved Riyadh’s capacity through the loss of 5.7 million barrels a day or the equivalent of five per cent of global supplies.

READ: Aramco meets investors in last-minute bid to hit $2 trillion IPO target

The lack of transparency over how much sway Riyadh has over the oil company’s assets is also believed to be a factor frightening investors from purchasing shares in a company that ultimately belongs to the Saudi state.

Yesterday’s formal announcement is the closest the government has come to finalising the listing, which Saudi officials said would take place solely on the domestic Tadawul exchange for now. However according to the Financial Times, Riyadh could still pull the listing at a later stage if response from investors are not positive. The crown prince, known as MBS, who has embarked on an ambitious plan to diversify the kingdom’s economy, is hoping to raise as much as $60 billion through the sale of the shares. The final offer price, the size of the listing and the valuation are expected to be determined at a later date.

As the world’s largest company, owning shares in Aramco should be an attractive proposition. It holds a monopoly in Saudi Arabia, the world’s largest exporter of crude oil and last year it is reported to have made $111 billion in net income, almost twice Apple’s profit and many times the earnings of lesser rivals like ExxonMobil and Royal Dutch Shell.

The anticipated announcement of the IPO came days after this year’s Future Investment Initiative, in Riyadh. With world leaders flocking to the Saudi capital to attend the flagship investor meeting known as “Davos in the desert”, MBS is likely to have viewed their presence as the green shoot of his country’s rehabilitation.

READ: Saudi Investment Conference fails to obtain enough investments