Aramco announces stock market debut but foreign float on hold

DHAHRAN: Saudi Aramco announced on Sunday its long-awaited stock market debut in what could be the world's biggest IPO, underpinning Crown Prince Mohammed bin Salman´s ambitions to overhaul the kingdom's oil-reliant economy.

After years of delay, Aramco said it plans to sell an unspecified number of shares on the Riyadh stock exchange, calling it a "historic" milestone for the energy giant which pumps 10 per cent of the world´s oil.

However, the state firm said there were no current plans for an international listing, indicating that the long-discussed goal for a two-stage IPO including an offering on a foreign bourse had been put aside.

The market launch of the world's most profitable company forms the linchpin of Prince Mohammed's ambitious plans to overhaul the oil-reliant economy, with tens of billions of dollars needed to fund mega projects and new industries.

Also read: Saudi Aramco board sees too many risks for New York IPO: sources

With analysts saying that Aramco could be valued at up to $1.7 trillion, the initial public offering (IPO) is potentially the world's biggest, depending on how much of the company it decides to sell.

"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," Aramco chairman Yasir al-Rumayyan said.

"Since its formation, Saudi Aramco has become critical to global energy supply."

The final offer price and the number of shares to be sold "will be determined at the end of the book-building period," said the firm, which is headquartered in the eastern city of Dhahran.

Aramco had initially been expected to sell a total of five percent on two exchanges, with a first listing of two percent on the Tadawul Saudi bourse followed by a three per cent listing on an overseas exchange.

But amid reports that it was struggling to get big institutional investors on board, Rumayyan indicated that the highly anticipated plans for the second stage had been put aside.

"For the (international) listing part, we will let you know in due course. So far it´s only on Tadawul," he told a press conference.

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However,the company said the Riyadh offering was open to institutional investors as well as Saudi individuals, foreigners resident in the kingdom and other Gulf citizens.

The company also released its results for the nine months to September, saying net profits came in at $68 billion. Aramco only began releasing interim financial results recently.

Its 2018 net profit of $111.1 billion is higher than the profits of Apple, Google and Exxon Mobil combined.

'Integral component'

The listing forms the cornerstone of Prince Mohammed's ambitious plans to transform the Arab world´s biggest economy.

First suggested by the kingdom's de facto ruler in 2016, the IPO was delayed several times reportedly due to his dissatisfaction with the valuation of the firm, which fell short of the hoped for $2 trillion.

Last week, Energy Intelligence cited sources as saying they expect the Saudis to settle on a valuation of $1.6 trillion to $1.7 trillion for the firm.

If confirmed, that would imply the kingdom is ready to accept a compromise of less than the $2 trillion that Prince Mohammed has long insisted the state oil giant is worth.

It remains to be seen whether Saudi authorities are able to find "a compromise between the crown prince's stated preference and market realities in their valuation of Aramco," said Kristian Ulrichsen, a fellow at Rice University's Baker Institute in the United States.

"As the process has been delayed repeatedly and built up as such an integral component of the crown prince´s plan to transform Saudi Arabia, international investors will pay very close attention to how Aramco performs on the domestic exchange," Ulrichsen told AFP.

Aramco, which pumps around 10 per cent of the world's oil, is the most profitable company globally and is seen as the kingdom's crown jewel and the backbone of its economic and social stability.

Saudi Arabia has boosted efforts to woo investors to the long-awaited stock market debut by announcing an annual dividend of $75 billion, according to the company's website.

Riyadh is also reportedly seeking to get wealthy Saudi families to buy a stake in the company while some Saudi commentators have sought to promote investment in the stock as a patriotic duty.

However, Aramco executives have encountered scepticism among institutional investors in London and New York on questions about the firm´s transparency, governance practices and targeted valuation, sources have told AFP.

"An important function of the domestic IPO is to project confidence in the company towards the international market, but doing it domestically encounters no meaningful obstacle, comparable to doing an international listing," said Cinzia Bianco, Gulf research fellow at the European Council on Foreign Relations.

"It allows Prince Mohammed to show he keeps his promises and gets things done, another step to reassure international investors that the IPO will happen after all," Bianco said.