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SAUDI-ARAMCO-ENERGY-LEAD
Saudi oil giant Aramco heads for record-setting market debut
DHAHRAN, Saudi Arabia, Nov 3, 2019 (BSS/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’ –
“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.”
BSS/AFP/RY/1905 hrs