Taking a look at the Saudi Aramco IPO
Brief Background:
On November 3rd, 2019, Saudi Arabia’s state-owned oil producing company announced their plans to go public, in what is shaping up to be the largest IPO in history. Saudi Aramco is the largest integrated oil and gas company in the world, producing about one-tenth of the world’s output and making $111 billion in net income last year alone. It has been estimated that investors will value the company at 1.5 to 2 trillion dollars, but recent estimates put the figure closer to $1.5 trillion. Furthermore, Aramco only plans to sell roughly 5% of the company, with certain percentages of that being listed domestically and on premier exchanges like New York or London. Though the company did announce that it plans to initially trade on its domestic exchange only, it does have plans to go international in the future.
Obstacles and Opportunities
This IPO has been anticipated for a few years, but has been delayed due to geopolitical events, uncertainty over the evaluation, and price volatility in the oil industry. Events such as the recent drone assault on two of their oil installations by Yemen’s Houthi rebels have raised concerns around the IPO reaching its 1.5 trillion dollar valuation. Also growing concerns relating to the use of fossil fuels and the increased interest in renewable energy has posed a threat to the success of the IPO.
It has been reported that most of the proceeds from the IPO will not be utilized in Aramco’s operations, but instead be channeled into Prince Mohammed’s Public Investment Fund. Which has become the Prince’s most prominent means of shifting the country’s economy away from oil production. This fund is invested in companies like Uber and Posco Engineering & Construction Co.
Personal Thoughts:
I believe if Aramco is able to achieve their 1.5 trillion dollar valuation, then it will bring about a great deal of positive change. By going public, the company will be forced to be more transparent, not only financially but also in terms of their direct and indirect effects on the environment. Moreover, the proceeds would most likely be channeled into the Public Investment Fund, which has goals of being a catalyst for many new and exciting renewable technologies. Also it is exciting to witness history and this is shaping up to be the biggest IPO of my lifetime!
