Earlier this year, Saudi Aramco, the world's largest energy company, confirmed its status as the most profitable company after disclosing its financial data for the first-time ever. On Monday, the company declared that its profits have dropped 12 percent in the first half of its financial year, a consequence of weaker global oil prices.
But, that hasn't changed Saudi Aramco's position as the world's most profitable company. The company recently revealed that its profits dropped down to $46.9 billion during the first six months of 2019, another rare financial disclosure. To put things in perspective, Apple generated a profit of $31.5 billion during the first six months of its 2019 financial year.
In 2018, the state-run oil giant announced it made $111 billion in profit, which is more money earned than four corporate giants combined. These include J.P. Morgan Chase, Google-parent Alphabet, Facebook, and Exxon Mobil. Together, these companies made nearly $106 billion in 2018. The company also beat the likes of American tech company Apple Inc., which made a profit of $59.4 billion during the same period.
According to CNN Business, Saudi Aramco produce an average of 10 million barrels of crude oil per day. However, low oil prices were to blame for the decrease in profits during the first six months of 2019.
The company's relatively frequent disclosure of financial data comes after the company's much delayed public offering, which was first announced in 2016. It was scheduled to take place in 2018, then again in 2019. Now it's been said the listing is scheduled for 2020-21.
Towards the end of March, Saudi Aramco announced its plans to buy a 70-percent stake in state-controlled petrochemical giant SABIC for $69.1 billion; the remaining 30 percent will continue to be listed on Saudi Arabia's Tadawul stock exchange. The transaction "would give Crown Prince Mohammed bin Salman a chunk of the cash he needs to diversify the Saudi economy," as reported by the New York Times.
Aramco reportedly held talks with a number of investment banks earlier this year to discuss their potential roles once it has finalized its merger with Saudi Basic Industries Corp (SABIC). Sources told Bloomberg that Aramco was waiting till the SABIC acquisition is complete before moving forward with the IPO. The kingdom aims to raise a record $100 billion from selling a 5-percent stake in the state-owned oil giant, which would make it the biggest IPO in history.
The energy giant is also planning a multi-billion dollar investment in India's Reliance Industries, as reported by Reuters. Aramco has "signed a letter of intent to take a 20 percent stake in Reliance's oil-to-chemicals business." It is considered to be one of the largest-ever foreign investments in India.
Why is Saudi Aramco going public?
Low oil prices have hit the Saudi economy hard, forcing the kingdom to cut subsidies and strive to diversify its oil-reliant economy. A 2016 report suggested the kingdom will fall into an economic recession in 2017 for the first time since 1999. Although 2016 turned out better than experts had expected, the kingdom still ran a deficit, forcing it to dig deep into its massive foreign reserves.
An IPO (Initial Public Offering), which is the first time the stock of a private company is offered to the public, was meant to be a step forward for the kingdom. Crown Prince Mohammed bin Salman's ambitious Vision 2030 pushed for major economic reforms in the kingdom, and the announcement of the partial sale of Aramco was included in it.
As part of the wider plan, the kingdom announced 20 percent pay cuts for all ministers and 15 percent pay cuts for Shura Council members in 2016. Bonuses and other perks were also targeted by the reforms, and sales taxes have been introduced. More than two-thirds of Saudis work in the public sector, with the kingdom spending roughly 45 percent of its budget, or $128 billion, to pay their salaries in 2015. The kingdom also sold $17.5 billion in debt in 2016. This was the largest-ever bond sale from an emerging market. The sale was hailed as a major success for the world's top oil exporter, as it attracted investor interest totaling $67 billion, nearly four times the amount of the sale.