Saudi Aramco blockbuster flotation: the risks and opportunities

The world’s most valuable company has outlined the next stage of its planned flotation on the Riyadh stock exchange, in a newly published prospectus that also highlights the risks involved.

The 658-page report from state-owned oil giant Saudi Aramco reveals that “individual retail investors will have a chance to buy shares as well as big institutions”, says the BBC.

Up to 0.5% of the company will reportedly be set aside for retail savers - equivalent to about a billion shares - but Aramco has yet to name a percentage for larger institutional buyers, nor when the planned float will take place, adds the Financial Times.

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Bankers value the company at $1.5trn (£1.2trn) and $2trn (£1.6trn), making it the biggest stock market listing in history.

What opportunities does the float offer?

Saudi Arabia’s Crown Prince Mohammed bin Salman is looking to sell a yet-to-be specified number of shares to raise billions of dollars that will be invested in non-energy industries, in a bid to diversify the Saudi economy.

The company supplies 13% of the world’s oil and last year posted a net profit of $46.9bn (£36.5bn).

Those profits are more than twice those of Apple, the world’s most profitable listed firm, and more than those of the next six biggest oil companies combined.

Al Jazeera reports that Saudi Aramco’s prospectus suggests that “global oil demand may peak within the next 20 years” and that “Saudi Arabia’s market share could rise from around 15% to 20% by 2050”.

As MarketWatch notes, “the company’s size and profitability has made it undeniably attractive to potential investors”.

“Aramco’s low-cost oil production and its enormous reserves have helped transform the kingdom into one of the world’s top 20 economies,” the financial news site adds.

What are the risks?

The initial public offering faces “a few obvious risks- such as the supply, demand and price of crude oil”, says CNBC.

In an article for The New York Times, Aramco expert Ellen R. Wald points out that there is “no avenue for redress” in Saudi Arabia in the event that shareholders disagree on the company’s future direction.

“There is no venue for shareholders to bring a grievance if the company’s and shareholders’ interests conflict with the king’s demands,” Wald explains. “Saudi courts are not independent, and no judge could rule against the will of the king in favor of foreign investors.”

Meanwhile, Bloomberg reports that the valuation of the float is “vulnerable to the Russians”, with global oil prices “at the mercy” of the Organization of the Petroleum Exporting Countries (OPEC+) - an alliance of crude oil producers who coordinate production restrictions to help stabilise the oil market.

The news site points to Russia and Iraq as countries that “haven’t been doing their fair share of cutting crude production to shore up the price”.

The newly published Saudi Aramco prospectus also warns investors of “the potential for terrorist attacks and the potential for encountering antitrust legislation”, according to Reuters.

Other potential risks for investors include the Saudi government’s power to “decide maximum crude output” and to “direct Aramco to undertake projects outside its core business”, adds the news agency.