Saudi Arabia oil company, Saudi Aramco is one of the largest oil giants with the highest profitable business around the world. It is also known as the mother of oil companies. Last year, Aramco stood highest with its record earnings of $111 bn.
All the investors, businessmen, and economists even the common people look towards Aramco with the hope to be a part of the largest organization. Before the following year ends, the oil giant made sure to be a part of the headlines once again like previously but in a different manner. It is all set to make records and what new they up to be is briefly explained in the article below.
IPO – the hottest global buzz of the year
IPO stands for the Initial Public Offering. The new prospectus of the Saudi Aramco released on Sunday comprises of 650 pages announced that the company has finally implemented their 4-years deciding the plan of offering their shares for the public to buy and be a shareholder of the largest profitable company around the globe.
How many shares are offered by IPO?
In the first phase, Aramco has decided to open 1.5% shares or 3 billion shares of the company for the public which will cost approximately more than $25bn or 96bn SR/-. This will not only make Aramco IPO potentially the world’s biggest IPO but also if the top end range of earning is raised above the estimated value it will beat the record-breaking $25bn raised by Chinese e-commerce giant Alibaba in 2014.
Shares to be offered at low prices to every citizen
It is under discussion about what prices to be offered to the public but sources confirm the price range of 30-32 Saudi riyals that is $8-$8.5 per share. Thus it allows everyone to be a part of the leading oil company by investing in the shares opened publicly.
The company is selling 0.5% shares to individual investors, which will include Saudi citizens, residents of Saudi Arabia and Gulf Arab nationals, and 1% to institutional investors, which could include major Chinese and Russian buyers.
What is new in Aramco IPO?
For the first time, Aramco gives a chance to the local Saudi citizens to be part of the country’s economy as a third of Aramco’s shares which are about $8bn worth will be sold to the man and even the divorced woman on the street.
The conflict of listing shares in the market for Aramco
Aramco had initially been expected to sell some 5% of its shares on two exchange markets,
- the first listing of 2% on the kingdom’s Tadawul (Stock Exchange) bourse,
- Another 3% on an overseas exchange.
However, now the plan of the International listing has been dropped off to empower the local citizens. The related sources commented on this saying,
“This will put the burden of the deal on local and regional banks; this means most of the investors will participate as Qualified Foreign Investors in a Saudi transaction,”
Why the oil giant required this step?
Under the Saudi Vision 2030, the government is planning to shift its economy from oil. As a part of the greater agenda, the largest oil company opened its shares publically to raise money which will help in the kingdom’s economy and well-being. Prince Mohammed Bin Salman said,
“Listing Aramco is one way for the kingdom to raise capital for the country’s sovereign wealth fund, which would then use that revenue to develop new cities and lucrative projects across Saudi Arabia.”
Analysts S&P Global Ratings said,
“The stock market debut could enable Saudi Arabia to strengthen its financial position. If subsequently effectively deployed, the funds raised could be used to support longer-term economic growth in Saudi Arabia,”
Upcoming strategy to handle the public offering
Following things are planned to carry out successful IPO
- Aramco has planned a dividend of $75bn next year, which is more than 5 times greater than Apple’s payout, the biggest of any S&P 500 companies.
- It has hired a host of international banking giants including Citibank, Credit Suisse, and HSBC as financial advisers to assess interest in the share sale and set a price based on the level of interest.
- Advertising campaigns including TV, billboards, social media to create hype among people.
- After flotation, no more shares will be listed for the coming 6 months.
What is expected from the IPO?
The company is expected to raise $1.6 – $1.7tn which is $2tn short to the target made by the Crown Prince Mohammad Bin Salman. However, this is huge and authorities are hopeful to earn and diversify their economy. The company believes there has been sufficient interest that they’re confident they can cover most of this off within the Gulf and thus they delayed the international listing.
The potential risks associated with IPO by Aramco
Since it is one of the huge IPO ever offered by any company and keeping in mind it is a giant oil company earning profit already, huge risks are associated with it.
- The first and foremost risk the geostrategic location that hinders the investor’s interest. The 14th September drone attack on the facilities is very fresh in investors’ minds.
- The ethical and environmental consciousness which is leading to investors screening out companies considered unsustainable or morally dubious. Since Aramco mainly functions on the fossil fuels, therefore, the possibility of investment is at risk under the Environment, Social Governance (ESG) criteria.
- Since the demand is decreasing due to the environmental concerns, oil prices remain the same and the supply isn’t short due to which the benefits are risky.
A broad spectrum to view at a glance
Moreover, the concerns since the biggest oil company are in the market, it is going to shake up the entire sector. After the flotation, the impacts will be huge on the energy sector. Even if not interested, everyone will be looking forward to the huge offering and investors will keep the rare opportunity at hand.