Published: Thu, November 07, 2019
Money | By Ethel Goodwin

Saudi Aramco: the oil colossus

Saudi Aramco: the oil colossus

In a historic move, oil giant Saudi Aramco, the world's most profitable company, is to list on the Riyadh stock market in what may well turn out to the biggest initial public offering (IPO) globally.

Saudi Aramco on Sunday confirmed it planned to list on the Riyadh stock exchange, describing it as a "significant milestone" in the history of the energy giant.

Saudi Arabia finally kicked off what could be the world's biggest initial public offering (IPO), revealing potential tax cuts and dividends to lure investors.

The market launch of the world's most worthwhile firm types the linchpin of Prince Mohammed's bold plans to overtake the oil-reliant financial system, with tens of billions of wanted to fund megaprojects and new industries.

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

Its net income for the third quarter of 2019 amounted to $21.1 billion, according to Reuters calculations, dwarfing the income for the same period of oil giants such as Exxon Mobil Corp, which was just over $3 billion.

"Saudi Aramco is at the heart not only of politics, but also of the economy and life in Saudi Arabia".

The company produced 10.3 million barrels per day (bpd) of crude previous year, touting the lowest cost in the world to produce crude, at $2.80 a barrel, according to company documents.

Formally known as Saudi Arabian Oil Co, Aramco is seen as the jewel in the country's business crown and the world's largest oil producer, which pumps about 10 percent of the global supply.

Merrill Lynch estimates Aramco's valuation could range from a low of US$1.2 trillion to a high of US$2.3 trillion, while EFG Hermes has an equity valuation of US$1.55 trillion to US$2.1 trillion, two fund managers who have seen the research reports told Reuters.

"You're basically a rock star if you work for Aramco", energy expert Jim Krane said.

The Tadawul All-Shares Index fell 4.0 percent in October as investors opted to sell their holdings to generate the necessary cash for the Aramco IPO.

The Capital Market Authority, CMA, stated on Sunday that its announcement was merely an approval of the application's legal requirements and should not be considered as a recommendation to subscribe in the offering.

It calculated the valuation using an oil price of $64.50 a barrel for 2019 and $60 a barrel from 2020 to 2023.

Saudi investors will be incentivized to buy: They'll be eligible for one extra share for each 10 they buy within the first 180 days.

Initial hopes for a blockbuster global listing of about 5% were dashed when the share sale was halted a year ago amid debate over where to list Aramco overseas.

The IPO process officially started Sunday, with the company filling a so-called intention to float document.

More than two dozen banks are handling the blockbuster IPO, including Citigroup, Credit Suisse, Goldman Sachs, and HSBC.

Aramco, already a global giant in its commercial operations, will be a truly worldwide company in its investor makeup too.

"The listing could be controversial because it's a massive fossil fuel listing in a time investors are becoming increasingly ethical", said Mr Hunter.

Proven liquid reserves as of December 31 were 226.8 billion barrels, "the largest amount of conventional proved liquids reserves of any company in the world and approximately five times larger than the combined proved liquids reserves of the Five Major IOCs [international oil companies]".

Aramco said on Sunday it meant to declare aggregate ordinary cash dividends of at least $75 billion in 2020.

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