Saudi Aramco, the world’s most profitable company, is to list on the Riyadh stock exchange in what could be the biggest initial public offering in history.
According to Bloomberg the state-owned oil giant is worth about $1.2tn (£927bn), and is expected to make shares available for between 1% and 2% of the firm.
The Saudi government initially discussed floating 5% of the company in 2018 in a deal that would raise as much as $100 billion. It was looking at international markets such as New York or London, as well as Riyadh “but the project was shelved amid concerns about legal complications in the United States, as well as doubts about the $2 trillion valuation sought by [Crown Prince Mohammed] bin Salman — only to be revived earlier this year after Aramco pulled off a successful international bond sale” reports CNN.
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Saudi Arabia “is expected to use the listing to leverage its vast fossil fuel reserves to help modernise its economy and gain international acceptance despite its troubling human rights record”, reports The Guardian.
The Financial Times says the listing of the state energy firm “is the centrepiece of Prince Mohammed’s ambitious plan to overhaul Saudi Arabia’s oil-addicted economy and would mark a milestone in his aggressive drive to reshape the conservative kingdom”.
The company supplies 13% of the world’s oil and last year posted a net profit of $46.9bn, more than twice as large as the world’s largest company by value currently, Apple, and more than the next six biggest oil companies combined.
“Once shrouded in mystery, Aramco has been transformed in the last few years as it geared up for this moment,” says BBC business correspondent Katie Prescott.
“It has begun publishing financial results, holding question and answer sessions about the company and even bringing journalists to its sites following recent drone attacks,” she adds.
However, Chris Beauchamp, chief market analyst at derivatives traders IG Group, said investing in Aramco “carries risks, of course, and not only that oil prices will struggle to move higher.”
“Political and strategic risks are high for any firm operating in the region, not least one which is an arm of the Saudi state. Aramco also has limited control in output policy, a key part of Saudi Arabia's Opec management.”
Aramco’s IPO “has been closely-anticipated in the last few years but has been delayed amid oil price volatility, valuation uncertainty, the location of the share listing and geopolitical events such the drone and missile attack in September” says CNBC.
Al Jazeera says “investor sensitivity to geopolitical risk was heightened after the 14 September attacks on Aramco's facilities that temporarily gutted the kingdom's oil production and laid bare the vulnerability of its oil infrastructure”.
Listing remains a controversial move within Saudi Arabia, with some hardliners nervous about relinquishing control over the state’s major money maker and fears a market undervaluation could have repercussions for the economy.
In a bid to avoid this, the FT reports that “wealthy merchant families — many of whom were ensnared in Prince Mohammed’s corruption crackdown in 2017 that saw some 300 tycoons and princes detained — have been pressured to invest in the company to ensure the success of the listing”.
The IPO also faces challenging conditions abroad, with the Saudi regime's image tarnished by the murder of journalist Jamal Kashoggi, relatively low oil prices and the surge in anti-fossil fuel sentiment around the world.
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