The Star Early Edition
Aramco toys with idea to go public
Supreme Council to decide
SAUDI Arabian Oil Company confirmed it is considering an initial public offering (IPO), which could see the crude producer leapfrog Apple as the world’s biggest listed company.
The company, known as Aramco, is studying whether to list “an appropriate percentage” of shares of the parent or a bundle of “downstream” units, according to a statement on Friday.
The findings of the review would be presented to the board of directors, which were to make recommendations to the company’s Supreme Council, Aramco said.
Deputy Crown Prince Mohammed bin Salman said in an interview with The Economist published last week that the kingdom was considering an Aramco IPO as part of a broader package of economic reforms, comparing his plans to Margaret Thatcher’s shakeup of the British economy in the 1980s.
The company controls about 10 times the oil reserves held by Exxon Mobil and could be worth more than $2.5 trillion (R40.75trln), according Danilo Onorino, a portfolio manager at Dogma Capital, a family office in Lugano, Switzerland.
The IPO proposal was consistent with the broader direction of economic reform in the kingdom, including state asset sales and market deregulation, Aramco said. Bringing in investors would also strengthen the company’s focus on longterm growth and the prudent management of its reserves, according to the statement.
An IPO could make Aramco the world’s most valuable firm, with a capitalisation at least double that of Apple’s $535 billion, according to Jason Tuvey at research firm Capital Economics.
Opening it up to investors would be the most dramatic change in the kingdom’s eco- nomic policy since it started nationalisation in the 1970s. The firm’s investment decisions have the potential to move crude prices and affect economies around the world.
The Economist said about 5 percent of Aramco could be offered initially in Riyadh and more shares could be sold later, although the kingdom would retain control.
Even a 5 percent share would be very large for the Saudi bourse to absorb, while a listing on a major international market would come with a lot of additional reporting requirements, said Richard Mallinson, an analyst at Energy Aspects.
“They’re going to be looking at what would be the strings that would be attached to a listing in terms of reporting and any other changes in the way that Saudi Aramco operates,” Mallinson said. “They could open up more of the downstream ventures. That would be a much less dramatic step.”
Aramco floated a subsidiary called Rabigh Refining and Petrochemical Company in the local stock market in 2008. The refinery, which processes 400 000 barrels a day, has a market capitalisation of $2.3bn.
While Saudi Arabia earned $285bn from petroleum exports in 2014, the slump in prices has squeezed revenue for oil producers. The price of crude sold by Opec members slid below $30 a barrel last week to the lowest level in 12 years as turmoil in Chinese markets deepened a global commodities rout. The group’s members lost about $500bn in revenue last year because of the slump.
Aramco pumps all of Saudi Arabia’s crude oil, with production at 10.25 million barrels a day in December.
Among listed companies, Russia’s Rosneft produces more than 5 million barrels a day, while Exxon pumps out about 4 million barrels. – Bloomberg