Saudi Arabia first announced its plans for a potential Initial Public Offering (IPO) of state-owned Aramco over three years ago. Since then, the planned listing has been shelved multiple times, but it seems as if the oil giant has finally kick-started its IPO once again.
On Sunday, Saudi Arabia announced that it is moving forward with the IPO of its state-owned oil giant, which would soon allow investors to own a chunk of the world's most profitable company. It plans to issue shares on the Tadawul stock exchange in Riyadh, though no specific timeframe has been given just yet. Although the oil giant did not say how much of the company it would sell, Reuters cited sources who said Aramco may offer 1-2 percent of its shares on the local stock exchange. This percentage may seem low, but selling those shares could raise as much as $20 billion to $40 billion.
Aramco has yet to officially announce the percentage of shares to be sold and the purchase price. These would be outlined after the book-building period. The IPO process officially started on Sunday and will most likely start trading in Riyadh next month.
"(The IPO) will increase our international visibility as the leading company in the world," said CEO Amin Nasser, according to CNN.
Though the IPO has witnessed delays previously, it seems as though it's officially getting off its feet. In 2017, Saudi Arabia was looking at international stock markets such as New York and London, as well as its local stock market Tadawul.
Saudi Arabia's Crown Prince Mohammed bin Salman hopes to pull off a $2-trillion-valuation for Saudi Aramco, something that has raised doubts in the past. Bloomberg recently reported that the valuation will probably be $1.5 trillion or less, as per research sent to potential investors by the banks involved in the IPO. If Aramco sells 2 percent of its shares at a $1.5-trillion-valuation, it would still be the biggest IPO in history.
Also, at a $1.5-trillion-valuation, Aramco "would still be worth at least 50 percent more than the world's most valuable companies, Microsoft and Apple, which each have a market capitalization of about $1 trillion," according to Al Jazeera.
In September, the public offering was also shaken up when two Saudi oil facilities were attacked. Oil prices spiked after the kingdom's oil production was cut by half following the strikes, affecting 5 percent of global supply as well. The price of international benchmark Brent crude posted its "biggest intra-day percentage gain since the Gulf War in 1991," according to Reuters. The price surged $12 in just the first few minutes - a 20 percent jump - reaching $71.95 per barrel at one point. However, prices went back down after U.S. President Donald Trump authorized the release of U.S. reserves to guarantee stable supply.
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, 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. MBS' ambitious Vision 2030 pushed for major economic reforms in the kingdom, and the announcement of the partial sale of Aramco was part of 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 different tax schemes have been introduced. 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.