LONDON – Saudi Arabia said on Sunday that it had approved plans for the giant state-owned oil producer Saudi Aramco to be published, take the country's crown jewel and what is probably the world's most profitable business near its long-awaited goal: to become a listed company.
The country's capital market authority said that Aramco planned to sell an unspecified percentage of the shares, which is expected to start trading next month. Bankers on the transaction have told the Saudi government that investors are likely to value the company at around $ 1.5 trillion, people told the case earlier.
And Sunday's announcement sets up what may be the largest first public offering ever, with a chance to exceed nearly $ 22 billion that Alibaba, the Chinese e-commerce giant, raised in one day in 2014
But Aramco's original offer will go below Saudi Arabia's bold goals.
When Mohammed bin Salman, the country's de facto ruler, first announced plans to take the company public in 2016, he said the company would be valued at around $ 2 trillion, that the offer would take place by 2017 and that its shares would trading on both a leading international stock exchange, such as New York, London or Hong Kong, as well as the Saudi stock exchange in Riyadh.
Nevertheless, Aramco appears to be valued at less than $ 2 trillion. And that's I.P.O. the process has gone well and started over the last three years, with breaks several times during the complications of preparing the economy and operations – long shrouded in secrecy, though it buzzed with wealth for its kingdom – for the scrutiny of public investors .
And while Prince Mohammed, the country's crown prince, had been eager to get Aramco to trade on both Tadawul, the local stock market and a more prominent stock market, which appears in the cards for now.
At last week's investment conference at the Ritz-Carlton Hotel in Riyadh, Saudi authorities made it clear that the Crown Prince's thinking is critical to the IPO
Prince's older half-brother, Prince Abdulaziz bin Salman, who was recently appointed Minister of Energy, told the conference on Wednesday be "a Saudi decision first and foremost, Prince Mohammed's decision."
Much of the proceeds from the offering will probably not flow to Aramco's business, but to the Public Investment Fund, a Saudi sovereign wealth fund that develops into the prince's most important vehicle for moving the country's economy away from its reliance on oil.
Together with venture capital investments such as Uber, the ride-sharing service that has a strong presence in the Kingdom, the Public Investment Fund is investing money in renewable energy and huge real estate projects aimed at creating jobs for Saudis. Neom, a huge futuristic city planned northwest of the country, will demand $ 500 billion from the Public Investment Fund and other investors over time, according to the website.
On Wednesday, the fund announced it borrowed $ 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 difficult to see why the prince is pushing for faster results driven by the sale of Aramco shares. The economy has not yet seen large payments from its schemes. Unemployment among Saudi nationals is still 12.7 per cent higher.
What remains indisputable is how great Aramco is. It made $ 46.9 billion during the first half and produced 10 million barrels a day, giving it an economic and production booklet that analysts have said will attract international investors.
Still, questions are likely to expose Aramco executives and their army of advisers as they continue to put potential investors on the offer. Some will concentrate on how the company has recovered after a devastating drone and missile attack in September that temporarily shuts down half of production.
The physical damage may have been largely repaired, but investors are likely to remain concerned that its facilities remain vulnerable to another attack, given the political tensions between Saudi Arabia and its neighbors.
"There is a risk of further attacks on Saudi Arabia, which could lead to financial damage," Fitch Ratings said in September when it downgraded Saudi Arabia's credit rating to A, from A +.
The investment in Saudi Arabia has generally been tempered by the killing and dismemberment of Saudi dissident and journalist Jamal Khashoggi by Saudi agents last year, and Prince Mohammed has claimed responsibility for the killing, but refused to order it, but those concerns 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 most powerful oil company comes as climate change concerns have raised doubts about the future of fossil fuels. Top institutional investors like the Singaporean sovereign wealth fund Temasek already have they will reduce their exposure to fossil fuels and potentially exclude them as supporters of Aramco.
Aramco officials address these concerns by putting around $ 600 million a year in research and development in areas such as more efficient automotive engines and vehicles equipped with devices to capture much of the carbon dioxide emissions they produce.
The company is also investing in plants and joint ventures aimed at fishing more of its oil for chemicals, which Aramco's management believes will see relatively strong growth in the coming decades, when the demand for transport fuel could fall as alternatives as electric cars become more accessible.
"The pessimism around oil is misplaced," said Aramco's technology manager, Ahmad Al Khowaiter, in a recent interview at the company's headquarters in Dhahran. "Growth is in materials; it's in chemicals," he added.
Michael de la Merced reported from London, and Stanley Reed from Riyadh.