The state-owned oil company Saudi Aramco, is planning to go public. This is expected to be the world’s largest IPO, and Saudi Aramco could thus become the most valuable company with a valuation between 2 and 3 trillion dollars, according to Thomson Reuters. The company is expected to list approximately less than 5% of its shares by 2018, as the firm feels comfortable that by that time oil prices will have recovered. In fact, crude oil prices have plummeted from $105.37 per barrel on June 2014, to $33.71 in January 2016, which is a spectacular decline of almost 68% in a year and a half. The company could thus raise approximately between $100-150 billion, overtaking by far the Alibaba’s IPO of 2014, in which the company raised a record $25 billion. The shares of the company are likely to be listed in the Saudi Stock Exchange as well as in a three-way listing in foreign stock exchanges. The most realistic candidates are New York, Hong Kong and London.
The capital raised by the listing will be invested in projects aimed at diversifying the Saudi economy, which is highly reliant on its oil revenues. As a matter of fact, according to the Wall Street Journal, Saudi Arabia has approved the “National Transformation Program” aimed at more than triple its non-oil revenue by 2020. For example, there will be a focus on developing industries such as tourism and the creation of approximately 450,000 private jobs for such an economic transition.
The Kingdom possesses 18% of the world’s petroleum reserves, which is approximately equivalent to 266 billion barrels according to OPEC. Moreover, Saudi Aramco averaged in 2015 an impressive daily production of 10.2 million barrels of crude. To make a quick comparison, Saudi Aramco produces approximately three times as much barrels per day as ExxonMobil, which is the currently largest listed oil company.
The oil industry has been subject to extreme price volatility in the past 2 years. The impressive decline of global oil prices can be explained by several factors. Firstly, the strengthening of the US Dollar. Oil prices, like most commodities, are dollar denominated. The currency appreciation has thus led to a decline in oil prices. In fact, the dollar started strengthening in 2014, the same year oil prices began to sharply decrease. A second factor is related to supply. Oversupply characterizes the current oil market, which has been the result of many events. For instance, domestic US oil production has almost doubled in the past years. Moreover, in January 2016, the US and European nations lifted oil and other financial sanctions on Iran, which could bring even more supply. Generally speaking, oil producers do not seem to envisage a lower oil production pace even if that implies accepting lower prices and revenues. Another factor is the declining demand. Unlike supply, demand is decreasing. Some economies are growing at a slower pace than in the past. For instance, European countries are experiencing low levels of growth, which translates into lower demand. However, according to the New York Times, there are “signs that demand is growing in the United States and China”.
Aramco’s advisors are about to break a record too. According to the Wall Street Journal this transaction would generate as much as $1 billion in fees, almost twice as much as the $550 million generated in the Visa IPO of 2008. Participating to this IPO is therefore fundamental, especially for investment banks, because of the decline of both the IPO and M&A activity.
JPMorgan and former Citi investment banker Michael Klein are already working on this IPO but Saudi Aramco is expected to hire more banks.
Riccardo Lizzi
The capital raised by the listing will be invested in projects aimed at diversifying the Saudi economy, which is highly reliant on its oil revenues. As a matter of fact, according to the Wall Street Journal, Saudi Arabia has approved the “National Transformation Program” aimed at more than triple its non-oil revenue by 2020. For example, there will be a focus on developing industries such as tourism and the creation of approximately 450,000 private jobs for such an economic transition.
The Kingdom possesses 18% of the world’s petroleum reserves, which is approximately equivalent to 266 billion barrels according to OPEC. Moreover, Saudi Aramco averaged in 2015 an impressive daily production of 10.2 million barrels of crude. To make a quick comparison, Saudi Aramco produces approximately three times as much barrels per day as ExxonMobil, which is the currently largest listed oil company.
The oil industry has been subject to extreme price volatility in the past 2 years. The impressive decline of global oil prices can be explained by several factors. Firstly, the strengthening of the US Dollar. Oil prices, like most commodities, are dollar denominated. The currency appreciation has thus led to a decline in oil prices. In fact, the dollar started strengthening in 2014, the same year oil prices began to sharply decrease. A second factor is related to supply. Oversupply characterizes the current oil market, which has been the result of many events. For instance, domestic US oil production has almost doubled in the past years. Moreover, in January 2016, the US and European nations lifted oil and other financial sanctions on Iran, which could bring even more supply. Generally speaking, oil producers do not seem to envisage a lower oil production pace even if that implies accepting lower prices and revenues. Another factor is the declining demand. Unlike supply, demand is decreasing. Some economies are growing at a slower pace than in the past. For instance, European countries are experiencing low levels of growth, which translates into lower demand. However, according to the New York Times, there are “signs that demand is growing in the United States and China”.
Aramco’s advisors are about to break a record too. According to the Wall Street Journal this transaction would generate as much as $1 billion in fees, almost twice as much as the $550 million generated in the Visa IPO of 2008. Participating to this IPO is therefore fundamental, especially for investment banks, because of the decline of both the IPO and M&A activity.
JPMorgan and former Citi investment banker Michael Klein are already working on this IPO but Saudi Aramco is expected to hire more banks.
Riccardo Lizzi