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Will Saudi Aramco IPO Succeed?


The world's most profitable company, the largest oil company Saudi Aramco is planning to list on Riyadh stock exchange for the first time on December 11.  Saudi Arabia is currently a state-owned company.  The size of the initial public offering is likely to break the world record and become the largest IPO ever.  The latest IPO proposal, the company's valuation is 1.6 to 1.8 trillion US dollars, the initial public offering of 1.5%, the expected financing of 25.6 billion US dollars (96 billion rials), surpassing Alibaba's 2014 world's largest IPO record of 25 billion US dollars set in New York.

“Aramco produces about 10% of the world's oil, with a net profit of $11 billion last year, more than any company, more than the combined total of Apple, Google's parent company Alphabet and Exxon Mobil. Aramco's target is $2 trillion.  The valuation is twice that of Apple; but Saudi Arabia is ready to accept a valuation of 1.6-1.8 trillion dollars to ensure the IPO can be successful." said by Chief Executive Amin Nasser

Saudi Aramco's listing and financing is one of the core elements of the economic reform strategy promoted by Saudi Crown Prince Mohammad bin Salman.  According to Salman's "Saudi Vision 2030" development blueprint, the new funds will be used for prop up Saudi Arabia’s Public Investment Fund, which will deliver new project, like energy and non-energy industry development, including develop solar energy.  The ultimate goal of the reform is to promote Saudi Arabia’s national economy, diversify its economy and wean itself off oil reserves.  Moreover, the announcement of the opening tourist visas for overseas visitors in September this year is also part of this roadmap.

Saudi Aramco's listing plan began four years ago and has been delayed several times. Controversies include lack of transparency in corporate management, a poor human rights record for the Saudi royal family, geopolitical tensions and the risk of terrorist attacks.

What’s the Saudi Aramco worth?  The opinions of company valuation are quite different.  Saudi Aramco was once very mysterious.  It is the largest oil company in Saudi Arabia and the most profitable company in the world, but the world knows just little about it.  The situation has changed dramatically since the listing and financing plan was put on the agenda. The company began to release regular financial reports and held public meetings to answer questions about the company.

Geopolitical risks are relatively high.  For example, after an unmanned aircraft attack and hit on an oil field, the production capacity is halved, which shows that Aramco is quite vulnerable to military threats.  After the attack, Saudi Aramco also specially invited reporters to go to the oil field for interviews to avoid investor panic.

The situation in the Middle East is unstable, and oil is a traditional dirty energy industry that runs counter to efforts to protect the environment and mitigate climate change.  From the above factor and also the outlook for the global economy dimming, oil prices stagnant, and especially with the U.S.-China trade war weighing on global growth prospects, investors should carefully evaluate whether to invest in Aramco.

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