Aramco: a tale of the world’s largest IPO
By Doaa Hussein
The Saudi government declared last week that its oil giant, Aramco, is up to the first Initial Public Offering (IPO) in its history.
Some economists expect that right after listing the company, it will surpass Apple’s market value by $1.5 trillion.
Andro Torman, a market analyst, declared to the Telegraph that according to the Kingdom’s latest decree, the Saudi giant will exceed Apple, the world’s largest company with a market value of more than $1.26 trillion. Torman described this shift in the Saudi policy as “the most dramatic”.
“This is the most important shift since the Saudi oil sector managed to phase out the foreign surveillance in the late 70s,” he added.
Aramco possesses one of the greatest market values globally, seizing the second largest oil reserves in the world. The company pumps around 261 billion barrels through more than 100 oil and gas wells in the Kingdom, followed by the largest private oil company in the Saudi Arabian market, the American Exxon Mobil, which values nearly $310bn (Aramco is forecast to value 20 times that of Exxon Mobil, as of the Wall Street Journal report).
On another hand, Aramco is deemed to overtake Alibaba Company’s record in 2014, which marked the largest IPO in the history, with Saudi Arabia’s announcement of floating shares of its largest oil producing company.
Through this offer, Aramco will vitalize the Saudi market and raise $50bn; doubling the amount Alibaba garnered 2 years ago. The Agricultural Bank of China comes in second place, claiming around $19.2bn from its IPO in 2010.
Muhammad bin Salman, Saudi Arabia’s Deputy Crown Prince and Defense Minister, told the Economist in an interview earlier that 5 per cent of Aramco could be offered initially in Riyadh, with more possible later. A decision on an offering may come in “the next few months”.
Many experts forecast that the IPO will consider mostly Aramco’s subsidiaries, joint ventures or refining operations.
“The Aramco IPO would easily be the largest IPO ever and will more likely consist of certain subsidiaries rather than the whole company,” Tiffany Ng, a Renaissance Capital analyst, told Investors Business Daily website via email.
However, according to some economists, listing the entire company, which contributes heavily to the economy and government revenue, is also possible.
“We are considering a listing at the top,” Aramco Chairman Khalid Al-Falih told the Wall Street Journal on Monday, indicating “a listing of the main company, and obviously the main company will include upstream,” referring to exploration and production assets.
Global finance giants, including Deutsche Bank, JPMorgan Chase, HSBC and Citigroup that witnessed a drop in investment banking fees by 8 per cent last year, are eager to reap this payoff from Aramco. Those financial groups have all worked with Aramco in the past and are likely to be big contenders in any IPO.
It is noteworthy that this IPO decision came after a heavy plunge in global crude prices, hovering around $30 per barrel, which was caused by low demand, in addition to a large influx of oil production, driven by strict OPEC members who push to drive out their US rivals out of the black gold market.
As a result, the Saudi budget deficit marked last year 15 per cent of GDP (Gross Domestic Product), and more than $100bn of the country’s $650bn of foreign reserves has already been used to fill up gaps left by shortening oil revenues.
The Saudi government unveiled its 2016 budget plan, with a huge rise in the price of petrol, electricity and water along with a pledge to introduce a value added tax of 5 per cent, together with tariffs on sugary drinks and tobacco.
