Saudi Arabia announced the long-awaited stock market debut of its giant state oil company, in what could be the world’s biggest ever share sale and a critical step in Crown Prince Mohammed bin Salman‘s ambitions to overhaul the kingdom’s oil-reliant economy.
After years of delay, Aramco declared on Sunday its intention to float on the domestic bourse, calling it a “historic” milestone and “important progress towards delivering Saudi Vision 2030” – the kingdom’s blueprint to build non-energy industries and diversify revenue streams.
But the state-owned firm offered few specifics on the number of shares to be sold, pricing, or the launch date. It also said there were no current plans for an international listing.
Bankers have told the Saudi government that investors will likely value the company at around $1.5 trillion, below the $2 trillion valuation touted by Prince Mohammed when he first floated the idea of an initial public offering (IPO) nearly four years ago.
Reuters news agency, citing business sources, said Aramco could offer 1-2 percent of its shares on Riyadh’s Tadawul stock exchange, raising as much as $20bn-$40bn.
A deal more than $25bn would top the record-breaking one of Chinese e-commerce giant Alibaba in 2014.
Formally known as the Saudi Arabian Oil Co, Aramco is the country’s business crown jewel and the world’s largest oil producer, pumping about 10 percent of the global supply.
The firm’s net income in 2018 was $111.1bn, far beyond the combined net income of oil giants BP PLC, Chevron Corp, Exxon Mobil Corp, Royal Dutch Shell PLC and Total SA.
“This is no ordinary company, this is a company that runs a country, a country which is pivotal to what happens in the Middle East,” said Al Jazeera’s Osama Bin Javaid, who has examined the strategic importance of the oil giant in his documentary Saudi Aramco: The Company and the State.
“Saudi Aramco is at the heart of not just politics, but economy and life in Saudi Arabia.”
The company employed 76,000 people worldwide in 2018 and had reserves of about 260.2 billion barrels of oil in 2017. It produces 10 million barrels of crude oil a day and touts the lowest cost in the world to produce crude, at $2.80 a barrel, according to company documents.
“Aramco is the sole oil producer in Saudi Arabia,” said Vandana Hari, CEO of Singapore-based think-tank Vandana insights.
“Saudi Arabia by no means is the biggest oil producer today, that position belongs to the United States, followed by Russia and Saudi Arabia is the third largest. But if you look at companies that produce oil in the US, and in Russia, no single company in any of these countries or elsewhere is comparable to Saudi Aramco in terms of the reserves it holds or the right to exploit those reserves.”
The Saudi-owned satellite channel Al-Arabiya reported last week, citing anonymous sources, that pricing for the stock will begin November 17. A final price for the stock will be set December 4, with shares then beginning to be traded on the Tadawul on December 11, the channel reported.
The sale of part of Aramco forms the foundation of Prince Mohammed’s turnaround plan for Saudi Arabia.
The crown prince touts it as a way to raise funds for the kingdom’s sovereign wealth fund, which will be used for projects to boost employment and develop new cities such as NEOM, a $500bn futuristic mega city planned on the northern Red Sea coast, which officials say will have flying taxis and talking robots.
“The first idea was to list Aramco either in New York, London or Hong Kong. But there has been some issues, especially regarding the New York stock exchange listing, because of possible litigation risks,” Rauf Mammadov at the Middle East Institute told Al Jazeera, referring to the US Justice Against Sponsors of Terrorism Act (JASTA) and proposed legislation known as “NOPEC”.
JASTA allows lawsuits against the Saudi government as it says it helped plan the September 11, 2001 attacks on the US and should pay compensation. Riyadh denies the charges.
NOPEC legislation would make it illegal for foreign nations to work together to limit fossil fuel supplies and set prices, opening Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries to US legal challenges.
After years of stop-start progress towards the IPO, scepticism abounds and the new stock will be under close scrutiny when it launches on the Saudi bourse in the coming weeks.
“Should shares fall sharply after they begin trading, it would be a highly visible blow to the credibility of the economic reforms so closely associated with Mohammed bin Salman, which is why the valuation is so important,” Kristian Ulrichsen, a fellow at Rice University’s Baker Institute in the US, told AFP.
“International investors will pay very close attention to how Aramco performs on the domestic exchange, especially in the absence of any firm detail over the international portion of the eventual dual listing.”
Confirmation of the sale of shares in Aramco comes amid growing concerns over instability in the Gulf region, including over a September 14 attack on the oil giants facilities that halved its oil production.
Yemen’s Houthi rebels claimed responsibility for the attack, but Saudi Arabia and the US blamed Iran. Tehran denies the claim.
Aramco said it does not expect the attack would have a material impact on its business, operations and financial condition, but it appears to have spooked some investors with one ratings company already downgrading the oil giant.
“Investors are also cautious of Saudi Arabia’s neighbourhood, with an ISIL-infested Iraqi desert in the west and Iran-allied Houthi rebels in the south, a self-inflicted crisis with Qatar in the east and brewing tensions in the Strait of Hormuz,” said Al Jazeera’s Bin Javaid.
“Investors also have to consider the opaque anti-corruption drive, which was seen as a shakedown of wealthy Saudis. And the public relations disaster of Jamal Khashoggi’s gruesome killing, which was directly linked to the crown prince.”