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The world's most profitable company will offer its first public stock offering next month, in what may be the largest IPO ever.
Saudi Aramco, the oil giant owned by the Saudi government, said Sunday that it will sell an unspecified number of shares, believed to be between 1% and 3% of the company. It did not specify a price range.
The company's first offering will be on Saudi Arabia's Tadawul Stock Exchange. "We are proud of the listing of Aramco," said CEO and President Amin Nasser. "It will increase our visibility internationally."
It has taken years to come to this moment. Saudi Crown Prince Mohammed bin Salman said in 2016 that he wanted the company to be published in 2017 and that it would be valued at $ 2 trillion. But getting their books ready now has taken off, and bankers have announced that the valuation should instead be around $ 1.5 trillion.
Aramco supplies about 10% of the world's crude oil. In 2018, the company earned $ 111 billion. That's more than JP Morgan Chase, Facebook, ExxonMobil and Google parent company Alphabet put together, as CNBC pointed out.
The company's finances have long been guarded, but it began to divide its numbers in preparation for the IPO.
disclosures show that it costs Aramco $ 2.80 to get a barrel of oil off the ground, which it can then sell for $ 62 per barrel, according to The Guardian .
"It produces oil for so much less than anyone else out there," says Ellen Wald, author of Saudi, Inc. a book on the history of Saudi Arabia and Aramco. "In the United States, I think a fracking company is lucky if it can go for $ 50 a barrel."
That's just part of what makes Aramco so profitable. The company also benefits from investments it has made in its infrastructure, making it cheap to pump its oil. Then there is the availability of the oil reserves.
"These are the largest conventional oil resources on the planet," says Wald.
The public offering is part of an attempt by the Crown Prince to diversify Saudi Arabia's economy and make it less dependent on oil. The move comes less than two months after Aramco's oil plant was attacked by drone strikes, which for a while cut the country's oil exports. Yemen's Houthi rebels claimed responsibility, but Saudi Arabia pointed its finger at Iran.
These attacks, among other geopolitical issues, have raised questions about the security of an investment in Aramco.
The Fitch credit rating agency recently downgraded Saudi Arabia's rating from A + to A, citing "increased geopolitical and military tensions in the Gulf region", as well as "vulnerability to Saudi Arabia's economic infrastructure, and continued deterioration in Saudi Arabia. Arabia's Financial and External Balance. "
Aramco Chairman Yasir al-Rumayyan downplayed those concerns at a press conference on Sunday.
Following the attacks on their oil plants, "the price of oil in the first two days rose by about 20%. Then it fell by 10%," Rumayyan said. "We have one-eighth of oil production in the world, and the oil traders saw this as a non-event. That means it's very safe. That's what the money says."
For the people of Saudi Arabia, IPO is a huge deal.
"This is your crown jewel," says Wald. "Many Saudis see this as an opportunity to actually invest in the incredible natural resource that was given to their country."
Saudi investors will be encouraged to buy: They will be eligible for an additional share for every 10 they buy within the first 180 days.
But for investors elsewhere, the prospect of buying Aramco shares may be more complicated. The company is mainly owned by the Saudi royal family. In September, Crown Prince Mohammed delayed admitting that he was responsible for the murder of journalist Jamal Khashoggi in October 2018 because "It happened under my watch", even though he did not take responsibility. The country only lifted the ban on women driving last year, and continues to have a guardianship system that limits women's rights.
And then it is Aramco's environmental protocol. A study by The Guardian found that the company is responsible for 4.38% of the world's carbon emissions since 1965.
With all that in mind, some investors may not want their pension funds to buy shares in Aramco stock.
"People have problems with Saudi Arabia: with their treatment of women, their issues with human rights. They have problems with fossil fuels," says Wald. "So people should be aware that this is happening and that this may be affecting their investment even if they do not know it. Although they have not actively decided to go into it."
But regardless of Wald, predicts that the IPO will be a historic moment.
"It will also be the first time people get a chance to really see Aramco's books," she says. "There have long been these kind of shady, mysterious companies that have kept their secrets very close to their chest. And the idea of getting into it and having a look or a peek inside is really fascinating to many people."