A bit more than a year ago Saudi Arabia announced that the Kingdom would be taking its national oil company, Saudi Aramco, public. This sent shock waves through the global oil and gas industry, since Saudi Arabia holds the world’s largest oil reserves.
Its national company, Aramco, is, quite possibly the most valuable company in the world. Saudi Arabia also holds the most powerful position in OPEC. Offering shares for even a small part of this national oil company would be unprecedented. It would be so unprecedented, in fact, that some analysts believe that the Saudis will, in the end, renege.
A year after the Saudi announcement however, it seems to most observers that the Saudis are serious about this IPO. Here is a look at where the Aramco IPO process stands and what investors need to know.
Timing: 2nd or 3rd Quarter of 2018
According to the latest from Aramco CEO Amin Nasser, the Aramco IPO is on track to take place during the second or third quarter of 2018. This depends, however, on whether Aramco is able to complete the financial restructuring required in order to adhere to international standards. Among other things, Aramco needs to change its tax structure. According to Nasser, Aramco pays a 20% royalty to the Saudi government, along with an 85% income tax. Aramco’s tax rate needs to be brought down so that the company’s tax burden is more in line with other publicly-listed oil companies.
Markets: Tadawul (Saudi stock market) and several others
Aramco is considering listing on several markets – perhaps three or four. One will almost certainly be the Saudi stock market, or Tadawul. The New York Stock Exchange is likely out of the picture because US regulations require oil companies to disclose detailed information about their oil reserves which is something the Saudis prefer to keep private. Deputy Crown Prince Mohammad bin Salman also indicated that Saudi Aramco is not planning to list on the NYSE. Other possible exchanges include London, Tokyo, or Hong Kong. It is also likely that Aramco shares will be available globally through other funds that invest in the Saudi market.
Banks: JP Morgan Chase & Co. and others
Currently, JP Morgan (NYSE:JPM) and Michael Klein, a former Citigroup investment banker who now runs his own firm, are advising Aramco on getting the company in the best financial shape for the IPO. Just this week, Aramco invited other banks to submit pitches for additional advisory roles in the IPO, including (so far): Goldman Sachs (NYSE:GS) and HSBC (NYSE:HSBC). The company is also looking for lenders. Morgan Stanley (NYSE:MS) and Credit Suisse (NYSE:CS) are rumored to be interested. Boutique firms Evercore Partners Inc. and Moelis & Co. are shortlisted as financial advisors for the IPO.
Valuation: $100 Billion for 5% of the company
Aramco plans to float approximately 5% of the company in its initial public offering. This would place the value of Aramco at around $2 trillion. It would also make it the largest IPO ever.
Some analysts believe that Saudi Arabia’s decision to exclude the country’s oil reserves from the IPO will diminish Aramco’s worth significantly. CEO Amin Nasser explained that the Saudi government actually owns all of Saudi Arabia’s reserves (Aramco has the exclusive right to exploit those reserves) and that information about these reserves is considered a matter of national security. That's because Saudi Arabia does not want to have information about the size, health and location of the reserves subject to independent verification.
Even without including Saudi Arabia’s oil reserves in the company’s listing, Aramco’s significant upstream, midstream and downstream industries—along with its R&D and numerous other holdings in a variety of sectors—are substantial enough that a total valuation in the trillion dollar range may be indicated.