SAUDI ARAMCO BITES OFF APPLE AS WORLD’S MOST PROFITABLE COMPANY
RIYADH—SAUDI Arabian Oil Co. (Aramco) hit the $2-trillion target sought by Saudi leader Crown Prince Mohammed bin Salman on Thursday as its shares clocked up a second day of gains, cementing its position as the world’s most profitable company, eclipsing even tech giants such as Apple Inc.
The Dhahran-based state firm, the world’s biggest oil producer, which has oil reserves estimated at 270 billion barrels, was the centerpiece of the Saudi prince’s vision to diversify the kingdom’s economy away from its dependence on oil by using the $25.6 billion raised to develop other sectors.
But that is well below his plan in 2016 to raise as much as $100 billion via a blockbuster international and domestic offering.
Scaled down
Riyadh scaled back its plans after overseas investors balked at the proposed valuation and only 1.5 percent of Saudi Aramco shares were listed on the Riyadh stock exchange on Wednesday, a tiny free float for such a large company.
While a 10-percent jump in the stock on its Wednesday market debut was hailed by the Saudi government as a vindication of its long-sought valuation, support was largely from loyal Saudi and Gulf investors, with some analysts saying it is worth less.
Aramco’s listing was front page news for almost all of Saudi Arabia’s mainstream media on Thursday, with headlines such as “Aramco at the top of the world” and “A dream come true.”
But Bernstein analysts put Aramco’s value at around $1.36 trillion, which compares with US energy giant Exxon Mobil’s market capitalization of less than $300 billion.
Size is not everything
“Saudi Aramco is the largest, most profitable oil company in the world—but size is not everything,” they wrote, flagging the risk of slow net income growth if oil prices stay flat. An International Energy Agency report on Thursday pointed to pressure on oil prices, predicting a sharp rise in global inventories despite an agreement by the Organization of the Petroleum Exporting Countries (Opec) and its allies to deepen output cuts as well as lower expected production by the United States and other non-opec countries.
Bernstein said Aramco should trade at a discount rather than a premium to international oil majors, with corporate governance “the key risk” as the Saudi government owned more than 98 percent of it.
“For actively managed funds, one of the key considerations—aside from valuation —will be ESG (environmental, social and corporate governance) criteria,” said Tim Love, investment director for emerging market equities at GAM.
“The main concerns here are lagging corporate governance standards as well as environmental issues since an investment in Aramco would obviously have a significant impact on a portfolio’s carbon dioxide emissions,” Love added.