Saudi oil giant Aramco heads for record-setting market debut

Dhahran (Saudi Arabia) (AFP) – Saudi Arabia announced Sunday the stock market debut of energy giant Aramco in what could be the world’s biggest IPO, underpinning Crown Prince Mohammed bin Salman’s ambitions to overhaul the kingdom’s oil-reliant economy.

After years of delay, Aramco said it plans to sell an unspecified number of shares on the Riyadh stock exchange, calling it a “historic” milestone for the world’s most profitable company which pumps 10 percent of the world’s oil.

However, the state firm said there were no current plans for an international listing, indicating that the long-discussed goal for a second offering on a foreign bourse had been put aside.

The launch, which has been approved by regulators, forms the linchpin of Prince Mohammed’s ambitious plans to transform the petro-state, with tens of billions of dollars needed to fund megaprojects and new industries.

With analysts saying that Aramco could be valued at up to $1.7 trillion, the initial public offering (IPO) is potentially the world’s biggest, depending on how much of the company it decides to sell.

“Today marks a significant milestone in the history of the company and important progress towards delivering Saudi Vision 2030, the kingdom’s blueprint for sustained economic diversification and growth,” Aramco chairman Yasir al-Rumayyan said.

The final offer price and the number of shares to be sold “will be determined at the end of the book-building period,” said the firm headquartered in the eastern city of Dhahran.

Aramco had initially been expected to sell a total of five percent on two exchanges, with a first listing of two percent on the Tadawul Saudi bourse followed by a three percent listing on an overseas exchange.

“For the (international) listing part, we will let you know in due course. So far it’s only on Tadawul,” Rumayyan said amid reports it was struggling to get institutional investors on board due to questions over transparency and governance.

– ‘Market realities’ –

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“An important function of the domestic IPO is to project confidence in the company towards the international market,” said Cinzia Bianco, Gulf research fellow at the European Council on Foreign Relations.

“But doing it domestically encounters no meaningful obstacle. It allows Prince Mohammed to show he keeps his promises and gets things done.”

First suggested by the kingdom’s de facto ruler in 2016, the IPO was delayed several times, reportedly due to his dissatisfaction with the valuation of the firm, which fell short of the hoped-for $2 trillion.

Last week, Energy Intelligence cited sources as saying they expect the Saudis to settle on a valuation of $1.6 trillion to $1.7 trillion.

It remains to be seen whether Saudi authorities are able to find “a compromise between the crown prince’s stated preference and market realities in their valuation of Aramco,” said Kristian Ulrichsen, a fellow at Rice University’s Baker Institute in the United States.

“As the process has been delayed repeatedly and built up as such an integral component of the crown prince’s plan to transform Saudi Arabia, international investors will pay very close attention to how Aramco performs on the domestic exchange,” Ulrichsen told AFP.

– Wooing investors –

Aramco, which makes Saudi Arabia the world’s top energy exporter, is seen as the kingdom’s crown jewel and the backbone of its economic and social stability.

Its 2018 net profit of $111.1 billion is higher than the profits of Apple, Google and Exxon Mobil — combined.

Aramco only began releasing interim financial results recently, but in its push for transparency, the secretive company also released Sunday results for the nine months to September, saying net profits came in at $68 billion.

The government is reportedly seeking to get wealthy Saudi families to invest in the IPO and to ease lending restrictions for ordinary citizens to buy a stake in the company.

Some Saudi commentators have also sought to promote investment in the stock as a patriotic duty, although observers pointed to the perils of the strategy.

“Listing on the domestic market without firm plans to list internationally is risky for the Saudi stock market because it could completely overweight it,” Ellen Wald, author of the book “Saudi Inc.”, told AFP.

“If oil prices drop or Aramco stock falls, it is such a large part of Tadawul, it could bring the entire stock market down.”