Ending months of speculation, Saudi Aramco has confirmed the launch of its initial public offering — although the coveted $2tn valuation looks out of reach
Saudi Crown Prince Mohammad bin Salman Al Saud (Credit: Kremlin)
Saudi Aramco has confirmed the launch of its long-awaited initial public offering (IPO), ending months of delay and speculation over the move to make a portion of the state-owned oil giant publicly available.
The number and price of shares to be made available will be announced at the end of the book building period, although reports suggest up to 3% of the company will be offered on the Tadawul stock exchange, raising around $60bn.
A prospectus for the offer will be issued on 9 November, according to the firm.
The news confirms reports last week on the Al Arabiya television network that a timetable for the offering had been finalised.
Saudi Crown Prince Mohammed bin Salman has long-targeted a $2tn market valuation from the float, but it is widely expected the final valuation will fall short of this, with financial analysts suggesting a figure in the region of $1.5tn to be more likely.
Saudi Aramco initial public offering is centrepiece to the kingdom’s modernisation strategy
A public listing of Saudi Aramco has been in the making for a number of years, as the kingdom seeks to reduce its dependence on oil and create capital for modernisation projects in line with the Saudi Vision 2030 plan.
Weak oil prices throughout this year, a drone attack on two of its key facilities in September, and public opinion turning against the fossil fuel industry have all played a part in dampening investor support for the IPO.
However, the Saudi kingdom has made efforts to incentivise participation in the deal – notably through the announcement of a 2020 shareholder dividend announced last month.
Saudi Aramco chairman Yasir Othman Al-Rumayyan said: “This is 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.
“Since its formation, Saudi Aramco has become critical to global energy supply. Its strategy is underpinned by long-term, exclusive access to the Kingdom’s unique hydrocarbon resources, which it manages in order to optimise production and maximise long-term value.
“At the same time, the company seeks to preserve the low carbon intensity of its crude oil production to demonstrate its ongoing commitment to sustainability.”
An investigation by the Guardian last month revealed Saudi Aramco to have been the world’s largest producer of carbon dioxide since 1965, emitting 59.26 billion tonnes of the greenhouse gas over the period.
Saudi Aramco earned $68bn in net income in the nine months to September
The IPO is widely-expected to surpass the world’s biggest public listing to-date, in which Chinese e-commerce giant Alibaba raised $25bn in 2014.
Saudi Aramco earlier this year revealed itself as the world’s most profitable company, having generated $111bn in net income during 2018 – putting it well ahead of closest rival Apple in terms of annual earnings.
As part of its IPO announcement, the oil firm also revealed that net income for the nine months to September stood at $68bn, on the back of $244bn in revenue.
As the Saudi kingdom’s economic crown jewel, Saudi Aramco boasts unfettered access to the region’s vast crude oil reserves – and, despite the drone attacks which disrupted production in September, is currently producing close to 10 million barrels of oil per day.
President and CEO Amin Nasser added: “Saudi Aramco’s vision is to be the world’s pre-eminent integrated energy and chemicals company.
“Over the past three years, we were responsible for one in every eight barrels of crude oil produced globally, and our proved liquids reserves at the end of 2018 were five times larger than the combined proved liquid reserves of the five major international oil companies — ExxonMobil, Shell, Chevron, Total and BP.
“Our mission is to provide our shareholders with long-term value creation through crude oil price cycles by maintaining our pre-eminence in oil and gas production, capturing additional value across the hydrocarbon value chain and profitably growing our portfolio.
“Building on our position among the world’s least carbon intense sources of crude oil, Saudi Aramco aims to grow its business sustainability by leveraging technology and innovation to lower our climate impact.
“We deploy technology, with the aim of producing oil and gas ever more efficiently, reliably and sustainably.”
Saudi oil giant revealed $75bn dividend to woo investors
In a bid to encourage investors, Saudi Aramco revealed plans last month for a $75bn dividend to be paid to shareholders in 2020, as well as an ongoing “progressive growing dividend on a sustainable basis at board discretion”.
A further incentive has been offered to eligible Saudi Arabian nationals taking part in the IPO, who will receive up to 100 “bonus shares” if they hold their allotted shares for at least 180 days after the first day of trading without interruption.
A debut bond was issued in April, in a further move designed to inspire investor confidence, according to analysts.
Many of the world’s biggest financial institutions are will be involved in facilitating the IPO, with around $450m in transaction fees expected to be up for grabs for the likes of JP Morgan, Credit Suisse, Goldman Sachs and HSBC.