During the first week of November, Saudi Arabia announced that the state-owned company would be moving forward with an initial public offering. The capital raise is expected to shatter records, as it will provide investors around the globe with a portion of the profits of one of the most profitable oil companies. The public offering of the state owned oil company is part of Saudi Crown Prince Mohammed bin Salman's plan to reduce the need for oil and diversify into other economic endeavors.

The IPO was announced on Sunday November 3, following approval from regulators. The company will float shares on the Tadawul exchange in Riyadh. Ahead of the IPO, Aramco executives will travel the globe providing investors with a prospectus of the company which will be followed by the financials. The financial will be based on the way the Kingdom values oil reserves which are vast in Saudi Arabia. Aramco is also the worlds largest exporter of crude oil. Profit in 2018 was $111 billion. The introduction of Aramco’s shares will buoy index trading in the region and likely give a profile boost to the Saudi All-share Index.

How Much Stock Will be Available?

This is a touchy subject and is a question of valuation. While Bin Salman reportedly sees the value of Aramco near 2 trillion, most Wall Street Analysts see the value closer to 1.5 trillion. The spread is very wide and will likely be the driver of how much will float. In 2018, the idea of taking Aramco to market was eventually shelved. In this instance, Bin Salman was considering a float of 5%. The likely percentage will be closer to 2%, which would generate an IPO of 50-billion which would top the 25-billion IPO of Alibaba in 2014. Uncertainty with respect to valuation will likely hang over the IPO as the company executives head out on a road show. Questions remain about international appetite for Aramco shares, and the exposure the company has to the geopolitical environment. For example, the IPO was just recently delayed in the wake of the attacks on Saudi oil facilities in September.

Saudi Retail Investors

Retail investors in Saudi Arabia are provide a benefit if these hold shares during a lock up period. Saudi retail investors will be eligible to receive a 10% bonus on the shares they purchase if they continuously and uninterruptedly hold the shares for 180 days from the first date of trading and listing on the exchange. Additionally, board of the company intends to declare ordinary cash dividends of at least $75 billion for 2020. The year to date financials is estimated as: Profits of $68-billion on revenue of $244 billion. The company reports an estimate of free cash flow $59 billion and capital expenditures of $23 billion.

Summary

Aramco announced on November 3, its initial public offering. Fund managers are now devouring bank research, but little certainty has been provided by Wall Street analysts. The risk also includes geopolitics, following the attack on Aramco’s facilities in September.

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