The biggest risks are related to Aramco's core business: oil. Demand for crude oil is declining – an impractical truth for bankers turning the monopoly into a valuation of up to $ 2 trillion. Add increasing pressure on institutional investors to ditch oil assets they already own, as well as a tough political environment in the Middle East, and the Aramco investment case is weakening.
"It's hard to see how the company is growing over time," said Anish Kapadia, director of energy at Palissy Advisors, a London-based investment advisory firm.
"We want to get financial investors from all over the world," Chairman Yasir Al-Rumayyan told reporters at a press conference on Sunday.
Global investors will surely give the company a good look. Aramco, which reportedly listed a 5% stake, has massive crude oil reserves. It generated a surplus of $ 68 billion for the first nine months of 2019, a slowdown from the previous year, when annual revenue was $ 111 billion.
"Aramco is the largest and lowest cost producer of oil, and the scale of available capacity still makes it uniquely strategic in the global oil market," wrote Hasnain Malik, the Dubai-based equity strategy chief at Tellimer, an investment bank focused on developing markets, in a note to customers.
The next few weeks can be tumultuous. Crown Prince Mohammad bin Salman reportedly sought a valuation for Aramco near $ 2 trillion. But the model run by Palissy Advisors puts Aramco's value at just a billion dollars. There is a huge range – and some investors will worry about paying too much. Some may decide to stick to existing oil and gas stocks, many of which have been sold publicly for several years and offer more transparency.
"There [are] many existing stocks that provide exposure to oil," Malik told CNN Business. "Taking a minority position in a state oil company may not be so appealing."
The dimming prospects of the oil
Brent crude, the global reference index, is currently worth around $ 62 a barrel. If oil prices were between $ 70 and $ 80 a barrel, it would be easy to cope with a few $ 100 billion more in value to Aramco, Kapadia said.
But prices do not go in that direction. Global economic growth is weakening, reducing demand, and fears of climate crisis escalating. OPEC said in a report published this week that annual oil demand growth will fall to just 500,000 barrels per day by the end of the next decade as developed countries move to renewable energy sources. Aramco could tighten its offer to raise prices – but not without stopping the divide between the cartel and its allied producers.
"It's really a one-man company, and the price of that product is very unstable," said Tarek Fadlallah, chief executive officer of Middle East at Nomura Asset Management.
"There is an increasing number of funds that have a stated policy that they will not invest in hydrocarbon-related companies," Fadlallah said. "This necessarily reduces the universe of funds that can invest in the listing of Aramco."
Aramco can do better than its peers if climate problems reduce fossil fuel demand because production costs are so low, said Andrew Grant, senior analyst at Carbon Tracker. But the company will still be hit if reduced demand eats into oil prices, making margins much less attractive.
The Saudi factor
"With any national oil company, the valuation is inextricably linked to the politics of that country," Kapadia said. He views Aramco as less politically risky than Russia's Rosneft or Brazil's Petrobras, but more exposed than the large oil companies based in developed markets.
The killing of journalist Jamal Khashoggi in the Saudi Consulate in Istanbul a year ago cooled international business ties with the kingdom. Conditions have only been partially repaired since.
"LGIM is currently evaluating the Saudi Aramco investment case while assessing business, valuation and corporate governance issues," the asset management company said in a statement.