The much-anticipated IPO was flagged in the year 2016 by the Saudi government but it has faced multiple delays since then due to concerns that its finances will be publicly scrutinized. Moreover, the drone attacks on its key oil facilities in September raised worries and threatened to jeopardize its planned listing.
Aramco has warned that terrorism and armed conflicts can affect the market price of its shares. Although the drone attacks’ responsibility has been claimed by Yemen’s Houthi rebels who used Iranian delta wing unmanned aerial vehicles compromising Iranian and Saudi relations.
The Iranian oil minister has brushed off these tensions to an extent by mentioning that the Saudi oil minister is an old friend and that no evidence was found that puts Iran guilty.
This may have suppressed the conflict for the time being but the fact cannot be overlooked that the missiles used in those attacks were Iranian.
Fig: Drone and missile debris from Aramco’s crash site.
Although Iran and Saudi Arabia have been members of OPEC, they are under the radar as they have disagreed on OPEC policies. Saudi has led cuts to the OPEC production while Iran, under US sanctions on its oil industry, did not want to cut the oil production.
Nonetheless, the world’s biggest company has released a prospectus providing further information but without revealing the precise size of the planned offering. Analysts have valued the company from $1.2 trillion to $2.3 trillion. Even if Aramco is planning to offer 0.5 percent of its shares to individual investors, it will be the largest public offering in history.
The company has confirmed that it will be providing aggregate cash dividends of at least $75 billion starting in the calendar year of 2020, in addition to any special dividends. This has already led the dividend investors to get attracted to the steady returns and they will try to put their money into stocks with the best yield.
The Saudi government will face a lockup period of 6 months until the further sales of shares after the IPO. The IPO is underwritten by J.P. Morgan, Morgan Stanley, Goldman Sachs, Citigroup, among various other renowned investment banking firms.
The shares will float on the Saudi Stock Exchange is known as Tadawul – in December.
Aramco President and CEO Amin Nasser said that the company’s public debt will help diversify the country’s economy. Also, the move will strengthen the Tadawul by drawing domestic and international investments.
There have been speculations that the company is not valued right hence the shares will be highly under or overvalued which has led speculators breaking their eggs for the IPO.
The result of this IPO will surely be beneficial for the kingdom as they are sitting on oil reserves of more than 260 billion barrels which makes them the top producers and exporters of petroleum globally. They own some 18 percent of the world’s proven petroleum reserves. The worst part is that this sector comprises half the country’s GDP and some 70 percent of its export earnings which makes the whole country dependent on this one entity. From what we have learned, its always good to have a diversified portfolio and I believe Saudi is moving in the right direction.
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