The world’s most profitable company is going public. Saudi Aramco, an initial public offering (IPO). This is the process companies go through when they want to change from being privately owned, and open up to public ownership by selling shares.
After more than three years of delays, thanks to extreme swings in crude oil prices and supply disruptions, Aramco is selling shares of the company to investors – foreign and domestic. What does everyone need to know about this landmark move? Let’s explore.
A Look at Saudi Aramco
Saudi Aramco plans to release its prospectus (a legal document that offers details about the investment) on November 9. If everything goes as planned, the world’s most profitable company will begin to trade on the nation’s Tadawul stock exchange in December.
Amin Nasser, Aramco CEO, said in a statement that the company aims to stay at the top of the oil and gas industries and expand into supplying other forms of energy. He stated:
“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.”
A valuation of Aramco’s worth ranges between $1.2 trillion and $2.3 trillion. Analysts reached this figure by calculating the price of a barrel of oil in 2019 and predicted prices for 2020-2023, as well as how much oil the company produces. They estimate prices between $60 and $64.50 and an output of 12.5 million barrels per day.
At this time, it is unknown how much Aramco will sell or how much money it will raise from the sale. The current thinking is that it will sell 2% of its shares and could raise up to $40 billion. This would make it the world’s largest flotation (selling shares on the stock market for the first time).
What else do we know? Here are some key facts:
- The company’s oil reserves total 263 billion barrels.
- Its natural gas reserves total 320 trillion cubic feet.
- Capital expenditures (money spent on buying or upgrading assets) for next year are projected to be $35 billion.
- Aramco is the largest cash holder among non-financial companies in Africa, Europe, and the Middle East, with $47 billion.
- The company’s tax bill could surge to as much as 80% if Brent oil prices top $100 a barrel.
Saudi individual investors will receive an additional bonus share for every ten shares they own for 180 straight days, with a maximum of 100 shares per investor. Foreign investors will be allowed to bid for Aramco shares in the IPO.
Profit Over Principles?
Saudi Aramco’s market debut will likely create controversy because it is owned by the Kingdom of Saudi Arabia. The country has faced a lot of criticism over its alleged human rights abuses, from torturing dissidents to detaining Muslim scholars and women’s rights activists. National reforms have been implemented by young Crown Prince Mohammad bin Salman, but some observers say that they are window-dressing and do not change the internal makeup of the Middle Eastern power. Will investors turn a blind eye to the country’s treatment of its people? Or, will traders sacrifice principles for potential profit?