Saudi Arabia begins IPO of the world’s largest oil firm.
Saudi Aramco launched its long–awaited
initial public offering, kicking off the centerpiece of Crown Prince Mohammed
bin Salman’s ambitious plan to overhaul the kingdom’s oil–addicted economy.
BY SAHIL DESAI | 4 Mins
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Oil
giant Saudi Aramco kick started its initial public offering (IPO) announcing
its intention to list shares on the local stock exchange in Riyadh as Saudi
Arabia seeks to diversify and create the world’s most valuable listed company.
The prospectus for the world’s biggest IPO will be released on November 9.
Saudi
Arabia is taking all the steps to ensure the success of Aramco’s IPO such as
tax cuts and dividends to attract investors.
Why is it worth so much money?
Saudi
Arabia has the second biggest oil reserves after Venezuela. It is also second
in production, after the US. But it gets its prominence because it has the
monopoly on all that oil in the country, and because of how cheap it is to
extract.
Aramco
pumps about 10% of the world’s oil and generated the most profit by any
corporation last year with a net income of $111 billion. Aramco posted a net
income of $68 billion during the 9 month period ending on September 30.
Due
to such high revenues it was targeting a $2 trillion valuation but is now ready
to accept a valuation of $1.6 trillion to $1.8 trillion to ensure the success
of IPO.
Why does Saudi want to sell shares in
it?
The
sale is key to Prince Mohammed’s Vision 2030 plan to overhaul the Saudi economy
and end the kingdom’s reliance on oil exports. The Crown Prince wishes to
diversify his country’s economy in the next decade under this programme. The
plan includes more solar power, making use of the country’s vast desert.
The
Aramco IPO is a significant step in this process, one that is reshaping the
kingdom’s economy, bringing new jobs and opportunities to its people bringing a
new era of social change in lockstep with the policies of diversification.
Why the sale is controversial?
The
path to the IPO is not going to be a smooth one. Prince Mohammed has been insisting
that the company is worth$2 trillion but is met with scepticism from
international investors.
The
original plan was to list Aramco in either New York or London stock exchange
but the idea has been dropped in favour of Riyadh-only flotation.
The
listing could be controversial because it’s a massive fossil fuel listing in a
time where investors are becoming increasingly ethical. Aramco has been facing
pressure from climate activism and thus investors might want to hold their
purchase.
“Aramco will be the dominant issue – it will have the immediate attention of every trader and fund manager, and it will bring a positive boost to portfolios – and to Saudi Arabia that will benefit from this sizable listing”
-Gulf
News
The
IPO of Saudi Aramco will offer individuals, funds and institutional investors a
chance to buy into the world’s most profitable company. By even offering a
small percentage of its size to investors on open markets in the kingdom and
elsewhere, it brings an immediate positive injection – literally a quantum leap
in value for bourses and every portfolio with a Saudi Aramco stake.
Saudi Arabia Oil Attack
The
September attacks on Aramco’s largest oil plant, which shut off about 5% of
global supply, raised questions about the vulnerability of Aramco’s oil fields,
plants and exports amid deepening regional tensions. Investors will have to
weigh up how to factor in heightened geopolitical risks. Though the company
said it quickly restored output and never missed any customer orders but the
incident might affect its valuation and investments to be made by the people.
The Bank Rush
Aramco has
hired nine banks as joint global coordinators to lead the IPO, including
JPMorgan, Morgan Stanley and Saudi Arabia’s National Commercial Bank. Around 20
banks have been added as book runners to do the work of underwriting for the
IPO of Saudi Aramco. Bankers say there is enthusiasm among Saudis for the
listing, with domestic investors expected to compromise the bulk of the
offering. Local banks are expected to lend heavily to Saudis to enable them to
buy shares.
Riyadh is
hoping to raise as much as $60 billion with a sale of up to 3% of the company.
The company said it would issue the IPO prospectus on November 9. The final
offer price, the size of the listing and the valuation would be determined at
the end of the book building period.
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