It makes more profit than any other company in the world, but is it the most valuable? The answer should come in December, when Saudi Aramco carries out possibly the biggest initial public offering in history. The company on Nov. 3 confirmed its intention to list shares on the Saudi Arabian stock exchange. The long-delayed IPO is part of Crown Prince Mohammed bin Salman’s grand vision to reshape the kingdom’s economy. It’s no ordinary share sale, and not just because of its size.

1. How much is Aramco worth?

That’s the big question. Aramco’s IPO was delayed just days before an expected October launch after doubts re-emerged about the $2 trillion valuation Prince Mohammed placed on the energy giant. He caused something of a shock in 2016 when he announced the plan and gave the lofty estimate, which would make Aramco almost twice the size of Apple Inc., the world’s biggest company by market capitalization. Some equity analysts put the number closer to $1.5 trillion (Bloomberg Intelligence estimates $1.1 trillion). The kingdom is now ready to accept a valuation of $1.6 trillion to $1.8 trillion, according to people briefed on the matter.

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2. Will it be a world record?

The original plan was to sell 5% of the company on international and domestic markets. That would have made for an IPO of between $50 billion and $100 billion -- far outstripping the world-record $25 billion raised by Alibaba Group Holding Ltd. in New York in 2014. But the proposal was scaled back, with plans now to sell around 2% only on the local exchange in Riyadh followed by another chunk later, according to people familiar with the matter. A 2% stake sale would, however, still represent a world record at the crown prince’s $2 trillion target. Aramco’s valuation will be determined during the investor roadshow and book-building, Chairman Yasir Al-Rumayyan said at a Nov. 3 news conference.

3. What’s different about this IPO?

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Saudi Arabia is leaning on its allies and subjects to help out. Wealthy families in the kingdom, some of whom had members detained and accused of corruption by the government two years ago, have been encouraged to invest. Saudi Arabia is also trying to persuade sovereign wealth funds to join the fray. In a sweetener, Saudi retail investors will be eligible to receive one share for every 10 if they hold them for 180 days from the date of the listing on the domestic bourse.

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4. Why no overseas sale?

An international share sale may happen, though it’s fraught with difficulties. New York’s appeal is limited because of a U.S. law allowing victims of terrorism to sue foreign governments linked to attacks, which may lead to litigation against Aramco. Overseas listings also open the company to intense and unprecedented scrutiny. Aramco lifted the veil on its operations by releasing six-month financial results, and the company said it earned $68 billion in the first nine months of the year. One advantage for the government of a listing on the Tadawul All Share Index is that it may help the bourse become a gateway for foreign investment into the kingdom.

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5. Why now?

The timing has raised eyebrows. Aramco pumps about 10% of the world’s oil, yet crude prices have fallen 16% in the past 12 months and the outlook for global growth suggests they may drop further. An aerial attack on Aramco’s largest processing plant in mid-September briefly wiped out half the company’s production capacity, highlighting its vulnerability as well as the region’s heightened geopolitical tensions. Saudi Arabia may be taking the view that it’s better to press ahead in case oil prices continue to slide.

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6. How attractive is the IPO?

Aramco makes more money than any other company, but investors may balk if the valuation is set too high, particularly given the political risk. To attract investors, Saudi authorities are reshaping the oil producers’ finances (most of its revenue goes to taxes and government royalties) as well as promising bumper dividends. For instance, the royalty it pays if Brent crude prices are less than $70 a barrel is falling to 15% from 20%. The “base dividend” in 2020 will be $75 billion -- much bigger than what other oil majors pay but a good deal smaller in terms of yield. Aramco is now considering raising dividends to $80 billion to boost demand.

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7. Will overseas investors buy?

The deal has been marketed extensively to international investors, according to people familiar with the plans, and approaches have been made to potential key investors such as Malaysia’s Petroliam Nasional Bhd., China’s Sinopec Group and China National Petroleum Corp. Aramco is also expected to use offering rules that enable it to market the shares directly to some international investors, according to the people. Following the IPO, foreign fund managers that track the MSCI Emerging Markets Index may be forced to buy. They’re already large holders of Saudi stocks, of which Aramco stands to become the biggest.

--With assistance from Paul Wallace.

To contact the reporter on this story: Matthew Martin in Dubai at mmartin128@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net, Grant Clark, Bruce Stanley

©2019 Bloomberg L.P.

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