▶ Shares in Aramco, which posted $68bn profit for first nine months of 2019, could be traded as early as next month


Saudi Ara­bia’s Cap­i­tal Mar­ket Author­ity ap­proved Saudi Aramco’s ap­pli­ca­tion for an ini­tial pub­lic of­fer­ing on the king­dom’s stock ex­change as the com­pany said it recorded a $68 bil­lion profit for the first nine months of the year.

The com­pany’s prospec­tus will be pub­lished be­fore the start of the sub­scrip­tion pe­riod, the CMA said on its web­site yes­ter­day. The prospec­tus for the IPO will be re­leased by Aramco on Satur­day, the com­pany’s chief ex­ec­u­tive Amin Nasser said in Dhahran yes­ter­day.

The price at which all sub­scribers in the of­fer­ing will pur­chase shares will be de­ter­mined at the end of the book-build­ing pe­riod, said Yasir Al Ru­mayyan, Aramco chair­man and gov­er­nor of the king­dom’s Pub­lic In­vest­ment Fund.

Once the book build­ing and share al­lo­ca­tion take place over the com­ing 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 in­di­vid­ual sub­scribers in­clud­ing Saudis and any non-Saudi res­i­dent of the king­dom or GCC cit­i­zens.

The de­ci­sion by the CMA comes three years af­ter Crown Prince Mo­hammed bin Sal­man an­nounced the in­ten­tion to list as much as 5 per cent of the com­pany with the goal of reap­ing $100 bil­lion from the of­fer­ing, as the king­dom looks to di­ver­sify its econ­omy away from hy­dro­car­bons.

“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,” Mr Al Ru­mayyan said.

“The com­pany’s strat­egy is un­der­pinned by long-term, exclusive ac­cess to the king­dom’s unique hy­dro­car­bon re­sources, which it man­ages in or­der to op­ti­mise pro­duc­tion and max­imise long-term value.”

Aramco, the most prof­itable com­mer­cial com­pany in the world, out­shin­ing the likes of Ap­ple, Google and Ama­zon, re­ported a net profit of $46.9bn in the first half of 2019. In April, Aramco is­sued a de­but $10bn bond, which was hugely over­sub­scribed.

Fil­ings for the bond prospec­tus re­vealed the sheer size of the com­pany, with a profit of $111.1bn in 2018 on rev­enue of $355.9bn. Aramco plans to pay a div­i­dend on $13.4bn for the quar­ter end­ing Septem­ber 30 and will de­clare an in­terim div­i­dend of a max­i­mum $9.5bn pend­ing board ap­proval, the com­pany said.

The en­ergy be­he­moth is the world’s largest in­te­grated oil and gas com­pany, pro­duc­ing one in ev­ery eight bar­rels of crude oil glob­ally. In 2018, the com­pany pro­duced 13.6 mil­lion bar­rels per day of oil equiv­a­lent, in­clud­ing 10.3 mil­lion bpd of crude oil.

The funds from the list­ing are ex­pected to help Riyadh spend on Vi­sion 2030 re­al­i­sa­tion projects such as the $500bn fu­tur­is­tic eco­nomic free zone Neom and the Red Sea Pro­ject, a mega-tourism at­trac­tion, as the king­dom opens up its tourism and en­ter­tain­ment sec­tor.

“Our mis­sion is to pro­vide our share­hold­ers with longterm value cre­ation through crude oil price cy­cles by main­tain­ing our pre-em­i­nence in oil and gas pro­duc­tion, cap­tur­ing ad­di­tional value across the hy­dro­car­bon value chain and prof­itably grow­ing our port­fo­lio,” said Aramco chief ex­ec­u­tive Amin Nasser.

Aramco is re­duc­ing the roy­alty on crude oil and con­den­sate pro­duc­tion to 15 per cent from 20 per cent on Brent prices up to $70 per bar­rel. It in­creased the mar­ginal roy­alty rate to 45 per cent from 40 per cent on Brent prices above $70 per bar­rel up to $100 per bar­rel. It also in­creased the mar­ginal roy­alty rate to 80 per cent from 50 per cent on Brent prices above $100 per bar­rel.

The com­pany is cut­ting the tax rate on down­stream busi­ness to 20 per cent from the 50 to 85 per cent multi-tiered struc­ture on the con­di­tion that the com­pany con­sol­i­date its down­stream busi­ness un­der the con­trol of a sep­a­rate, wholly owned unit be­fore De­cem­ber 31, 2024. The pe­riod for which Aramco will not be ob­li­gated to pay roy­al­ties on con­den­sate pro­duc­tion is ex­tended for an ad­di­tional 10 years af­ter the cur­rent five-year pe­riod ends on Jan­uary 1, 2023, and may be fur­ther ex­tended for sub­se­quent 10-year pe­ri­ods, sub­ject to govern­ment ap­proval.

Aramco said it ex­pects 2020 cap­i­tal ex­pen­di­ture to be be­tween $35bn and $40bn, and 2021 capex to range be­tween $40bn and $45bn.

“The com­pany be­lieves it re­tains sig­nif­i­cant flex­i­bil­ity to re­duce cap­i­tal ex­pen­di­tures in a lower oil price en­vi­ron­ment,” it said. In the medium term, Aramco ex­pects to spend 35 per cent on liq­uids-re­lated ex­pen­di­tures, 40 per cent on gas-re­lated ex­pen­di­tures and 25 per cent on down­stream-re­lated ex­pen­di­tures.

The prospect of be­ing part of the world’s big­gest IPO by far has at­tracted in­vest­ment bankers from across the globe and all ma­jor lo­cal and in­ter­na­tional lenders. Cit­i­group, Credit Suisse, Gold­man Sachs, HSBC, JP Mor­gan, Mer­rill Lynch Bank of Amer­ica, Mor­gan Stan­ley, NCB Cap­i­tal and Samba Cap­i­tal are joint fi­nan­cial ad­vis­ers on the com­ing of­fer­ing.

Aramco’s move to­wards a pub­lic list­ing gath­ered pace this year af­ter the com­pany bought a 70 per cent stake in Sabic in March as part of the king­dom’s plans to con­sol­i­date its oil in­ter­ests. Aramco took the stake in the big­gest petro­chem­i­cals pro­ducer in the Mid­dle East from state-con­trolled Pub­lic In­vest­ment Fund for $69.1bn.

“If it proves any­thing it proves that the pil­lars of Vi­sion 2030 are go­ing to be im­ple­mented fully,” said Ab­dulla Al Zamil, chief ex­ec­u­tive of Zamil In­dus­trial and chair­man of Gulf In­ter­na­tional Bank. “A lot of things were an­nounced back in 2016 and 2017 and now we are see­ing a lot of the vi­sion pil­lars be­ing im­ple­mented as promised, be they struc­tural re­forms or reg­u­la­tory re­forms ... if any­one had any doubts about vi­sion im­ple­men­ta­tion the IPO proves that Mo­ham­mad bin Sal­man is march­ing ahead.”

Ih­san Bu Hu­laiga, prin­ci­pal con­sul­tant at Joatha Con­sult­ing Cen­tre, said the IPO will “in­sti­gate eco­nomic growth so the econ­omy will have a bet­ter chance to cater to Vi­sion 2030 tar­gets”.

The of­fer­ing also “brings about a new di­men­sion of pos­si­bil­i­ties to Tadawul and to the fi­nan­cial mar­ket in Saudi Ara­bia,” Mr Bu Hu­laiga added. “It will, with time, bring in ad­di­tional ap­petite from for­eign in­sti­tu­tional in­vestors and it will also up­grade the dy­nam­ics of the Saudi stock mar­ket to be on par with the best and most com­pet­i­tive mar­kets.”

Aramco has been at the front and cen­tre of the king­dom’s eco­nomic re­form agenda af­ter the three-year oil price slump that be­gan in 2014 and pushed crude prices be­low $30 a bar­rel in the first quar­ter of 2016. Although the price of oil has since bounced back to above $80 per bar­rel in the fourth quar­ter of 2018 and is now hov­er­ing close to $60, the king­dom is con­tin­u­ing to in­sti­tute wide-rang­ing eco­nomic and so­cial re­forms.

The key pil­lars of the over­haul agenda are to cut Saudi Ara­bia’s de­pen­dence on oil, in­cu­bate home-grown in­dus­tries, de­velop al­ter­na­tive rev­enue lines and sell stakes in sta­te­owned en­ti­ties such as Aramco.

“We do not ex­pect any change in short-term pro­duc­tion pol­icy from Saudi Ara­bia in re­sponse to the IPO and that Saudi Ara­bia’s com­mit­ment to the Opec+ pro­duc­tion cuts will re­main in place,” said Ed­ward Bell a com­mod­ity an­a­lyst with Emi­rates NBD.


Amin Nasser, chief ex­ec­u­tive of Saudi Aramco, and Yasir Al Ru­mayyan, Saudi Aramco’s chair­man, at yes­ter­day’s IPO an­nounce­ment in Dhahran, Saudi Ara­bia

Source: Saudi Aramco

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