Aramco, the world’s most profitable company, approved for public listing
▶ Saudi oil and gas company will list up to 5 per cent of its shares to fund new projects
Three years after the idea was touted by Saudi Crown Prince Mohammed bin Salman, the kingdom yesterday approved plans to list the world’s most profitable company on the Tadawul benchmark exchange.
As Saudi Aramco received approval from the Capital Markets Authority to list, it said it recorded a $68 billion (Dh249.75bn) profit for the first nine months of the year.
That reinforced its position as the most profitable company in the world, eclipsing global technology companies such as Apple and Google, and oil and gas rivals BP and Exxon.
The company reported a net income of $111bn last year.
“Today marks a significant milestone in the history of the company and important progress towards delivering Saudi Vision 2030 – the kingdom’s blueprint for sustained economic diversification and growth,” said Yasir Al Rumayyan, Aramco chairman and governor of the kingdom’s Public Investment Fund.
“The company’s strategy is underpinned by long-term, exclusive access to the kingdom’s unique hydrocarbon resources, which it manages to optimise production and maximise long-term value.”
Aramco’s IPO prospectus will be released on November 9, the company’s chief executive, Amin Nasser, said in Dhahran yesterday.
The price at which all subscribers in the offering will buy shares will be determined at the end of the book-building period, Mr Al Rumayyan said.
Once the book-building and share allocation take place over the next several weeks, the company’s shares could start trading in the first half of December, although no date was specified.
The offering will be restricted to institutional investors and people including Saudi nationals and any non-Saudi resident of the kingdom or GCC nationals.
A 5 per cent stake of the company, as originally envisaged, would reap $100bn from the offering based on a $2 trillion valuation.
With $68 billion profits posted for the first nine months of the year alone – more than double those of Apple – Saudi Aramco is the world’s most successful commercial enterprise, eclipsing the likes of Amazon and Google. The oil and gas company supplies one in every eight barrels of crude oil to the world. The announcement that it will be floated on the stock market for the first time in its 86-year history make this potentially the world’s biggest initial public offering, or IPO, and an exciting opportunity for potential investors.
The state-owned energy giant which may be valued as high as $2 trillion could raise as much as $100bn. It forms an integral part of the kingdom’s plan to diversify from oil and hydrocarbons. The money generated will be the linchpin in funding reforms pioneered by Crown Prince Mohammed bin Salman, including investment in tourism, entertainment and cultural ventures.
The launch price has yet to be announced and the IPO will be limited in the first instance to those within the region, although Aramco has not ruled out foreign investment or an overseas share listing at a later date.
But it is nevertheless an historic moment, with ramifications beyond Saudi Arabia and will be closely watched globally as the kingdom opens up to the world.
Saudi Arabia is home to the world’s second-largest oil reserves after Venezuela and is the third-biggest oil producer globally.
Energy makes up 87 per cent of its budget revenues and more than 40 per cent of its gross domestic product. While oil wealth has enabled the country to thrive, it has also made the economy highly dependent on one sector, which is prone to fluctuation. In 2016, for instance, oil prices slumped below $30 a barrel – before rebounding last year to its current price hovering about $60.
Diversification will provide a long-term solution to a post-oil future; offering up a slice of its national energy company is a major step in this direction. The funds generated by the IPO will help Saudi Arabia finance new projects in non-oil sectors, in line with the crown prince’s Vision 2030.
These include bold initiatives such as the development of Neom, a $500bn futuristic high-tech city in north-western Saudi Arabia, and the Red Sea Project, an eco-friendly complex with white sandy beaches reminiscent of the Maldives. These projects are part of a multitude of sweeping reforms, which include the relaxation of laws relating to guardianship, women and travel.
They are already bearing fruit. Since Saudi Arabia began offering a tourism visa for the first time last month, it has welcomed tens of thousands of visitors
– a welcome boost to the tourism sector, which accounts for 3 per cent of the nation’s GDP but it is hoped will make up 10 per cent by 2030. Aramco’s IPO will serve as a vital cog in the wheel propelling the kingdom into the future. Its rewards will be apparent for years to come and help make the nation’s vision a reality.