LONDON — Saudi Arabia said on Sunday that it had approved plans for the giant state-owned oil producer, Saudi Aramco, to go public, taking the country’s crown jewel and what is probably the world’s most profitable enterprise close to its long-awaited goal: becoming a publicly traded company.
The country’s Capital Market Authority said that Aramco planned to sell an unspecified percentage of its shares, which are expected to begin trading next month. Bankers on the transaction have told the Saudi government that investors are likely to value the company at about $1.5 trillion, people briefed on the matter said previously.
Aramco is the behemoth in the oil business, alone producing about one-tenth of the world’s output. Last year, it made $111 billion in net income, almost twice Apple’s profit and many times the earnings of lesser rivals like Exxon Mobil and Royal Dutch Shell.
And Sunday’s announcement sets up what may be the biggest initial public offering ever, with a chance to exceed the nearly $22 billion that Alibaba, the Chinese e-commerce giant, raised in one day in 2014.
But Aramco’s initial public offering will fall short of Saudi Arabia’s audacious goals.
When Mohammed bin Salman, the country’s de facto ruler, first announced plans to take the company public in 2016, he said that the company would be valued at about $2 trillion, that the offering would take place by 2017 and that its shares would trade on both a premier international stock exchange, such as New York, London or Hong Kong, as well as the Saudi exchange in Riyadh.
Yet Aramco appears poised to be valued well short of $2 trillion. And its I.P.O. process has proceeded in fits and starts over the past three years, pausing several times over the complications of readying its finances and operations — long shrouded in secrecy, even as it gushed wealth for its kingdom — for the scrutiny of public investors.
And while Prince Mohammed, the country’s crown prince, had been eager to have Aramco trade on both the Tadawul, the local stock market, and a more prominent stock market, that appears off the table for the time being.
At last week’s investor conference at the Ritz-Carlton Hotel in Riyadh, Saudi officials made clear that the crown prince’s thinking was critical to the I.P.O.
The prince’s older half brother, Prince Abdulaziz bin Salman, who was recently appointed energy minister, told the conference on Wednesday that the listing would be “a Saudi decision first of all and, specifically, Prince Mohammed’s decision.”
Much of the proceeds from the offering are not likely to flow to Aramco’s operations but into the Public Investment Fund, a Saudi sovereign wealth fund that is evolving into the prince’s main vehicle for shifting the country’s economy away from its reliance on oil.
Along with venture capital investments like Uber, the ride-sharing service that has a strong presence in the kingdom, the Public Investment Fund is putting money into renewable energy and enormous real estate projects aimed at creating jobs for Saudis. Neom, a vast futuristic city planned for the northwest of the country, will require $500 billion from the Public Investment Fund and other investors over time, according to its website.
On Wednesday, the fund announced that it was borrowing $10 billion from a group of international banks, including JPMorgan, Citigroup and Bank of America. The loan would help “accelerate” the fund’s investment program, according to a news release.
It is not hard to see why the prince is pressing for quicker results fueled by an Aramco share sale. The economy has yet to see big payoffs from his schemes. Unemployment among Saudi nationals remains elevated at 12.7 percent.
What remains indisputable is how big Aramco is. It earned $46.9 billion in the first half of the year and produced 10 million barrels a day, giving it a financial and production heft that analysts have said would lure in international investors.
Still, questions are likely to dog Aramco executives and their army of advisers as they continue to pitch prospective investors on the offering. Some will center on how the company has recovered from a devastating drone and missile attack in September that temporarily shut down half of its production.
The physical damage may have been largely repaired, but investors will probably remain worried that its facilities remain vulnerable to another assault, given the political tensions between Saudi Arabia and its neighbors.
“There is a risk of further attacks on Saudi Arabia, which could result in economic damage,” said Fitch Ratings in September when it downgraded Saudi Arabia’s credit rating to A, from A+.
Investment in Saudi Arabia has generally been tempered by the killing and dismemberment of the Saudi dissident and journalist Jamal Khashoggi by Saudi agents last year. Prince Mohammed has accepted responsibility for the killing, but denied ordering it. Those concerns, though, were hard to find at last week’s investment conference, where Wall Street executives and world leaders converged.
Aramco’s status as the world’s mightiest oil company comes as concerns about climate change have raised doubt about the future of fossil fuels. Top institutional investors like the Singaporean sovereign wealth fund Temasek have already suggested they will reduce their exposure to fossil fuels, potentially ruling them out as backers of Aramco.
Aramco officials are addressing those concerns by putting around $600 million a year into research and development in areas like more efficient car engines and vehicles equipped with devices for capturing much of the carbon dioxide emissions that they produce.
The company is also investing in plants and joint ventures aimed at funneling more of its oil into chemicals, which Aramco’s leadership believes will see relatively strong growth in the coming decades, when demand for transportation fuels may fall off as alternatives like electric vehicles become more available.
“The pessimism around oil is misplaced,” Aramco’s chief technology officer, Ahmad Al Khowaiter, said in a recent interview at the company’s headquarters in Dhahran. “The growth is in materials; it is in chemicals,” he added.
Michael de la Merced reported from London, and Stanley Reed from Riyadh.
https://www.nytimes.com/2019/11/03/business/dealbook/aramco-ipo.html
2019-11-03 06:34:00Z
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