The largest oil company in the world goes to stock exchange

Saudi Crown Prince approves announcement of Aramco IPO on November 3 Report

Saudi Aramco’s Nine-Month Profit Falls 18% as IPO Starts

The state oil giant, the world's most profitable company, fired the starting gun on a domestic initial public offering (IPO) on Sunday after a series of false starts that had kept the investment world guessing.

Saudi Crown Prince Mohammed bin Salman widely touted the US$ 2 trillion valuation of Saudi Aramco, since whispers of the IPO came on the scene.

More than three years after the IPO was first mooted, Aramco published a so-called intention to float on Sunday, the most dramatic change to the Saudi oil industry since the company was nationalized in the 1970s.

The state-owned company however said there was no decision yet on the second part of the initial public offering (IPO) to list on an global stock market, raising doubts that this much-anticipated step will ever happen. Stock will be listed on the Tadawul Exchange, but Aramco didn't say when trading begins.

Among other expert valuations for Saudi Aramco, Bernstein analysts estimate "a fair value range" is $1.2 trillion to $1.5 trillion. The company has six months to list shares, under the approval granted Sunday by the Saudi Capital Markets Authority. The revenue from the ipo would be used for a new investment fund that enables the crown prince, Mohammed bin Salman, the country-by 2030, depending on wishes of the oil-exporting. Bank of America Merrill Lynch estimated anything from $1.2 trillion to $2.3 trillion; Goldman Sachs suggested $1.6 trillion to that same $2.3 trillion upper limit; HSBC put the range at $1.59 trillion to $2.1 trillion.

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Many consider the PIF to be the best way for Saudi Arabia to diversify its economy in a world with an uncertain future for oil demand.

At the news conference held at Aramco headquarters, Dhahran saw Chief Executive Amin Nasser revealing that the firm plans to release prospectus on November 9.

Aramco is certainly hard to value.

Saudi Aramco pumps around 10 percent of the total crude oil in the world.

Saudi Aramco declined to comment while the Saudi government's media office did not immediately respond to a request for comment. The prince has reportedly conceded that the success of the IPO is more important than getting the US$2-trillion valuation, which many see as unachievable.

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However, becoming more like an International Olympic Committee has its downsides: the company will inevitably be more focused on quarterly returns and short-term profits and have less ability to do the big, long-term, countercyclical strategic planning that it can do now.

"Some perspective on the Aramco IPO for the overall Saudi diversification story is needed: the likely Aramco IPO proceeds will be less than the Aramco dividends the government received in the first half of 2019 alone", said Hasnain Malik, head of equity strategy at Tellimer.

Having a large domestic investor base is expected to make it easier to achieve a higher valuation.

"It's not a straightforward IPO - state links, human rights, geopolitical risks, environmental stuff - that's a lot of bad boxes ticked here for your average western fund manager".

The company emerged as the most profitable company in the world in 2018 generating $111.1 billion net income in 2018.

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