Saudi Arabia is readying what's set to be the biggest initial public offering ever: Listing about 5
percent of Saudi Aramco, the world's largest oil producer. The IPO could give Aramco a valuation of $2 trillion according to estimations by Saudi officials and is part of a plan by Crown Prince Mohammed bin Salman to build a large sovereign fund and wean the kingdom off oil.
Proceeds from the sale could help the economy diversify into other sectors, including tourism, technology and more. Officials are still deciding where to list Aramco shares and stock exchanges from Europe to Asia to America are vying to host the giant IPO.
Earlier this month, in a major step ahead of the planned IPO, Saudi Arabia changed the status of Aramco to a joint-stock company. But it's still uncertain whether the state-owned company's shares will be listed in New York, London, or Hong Kong, in addition to Tadawul, the Saudi stock exchange.
According to the Financial Times, a Tadawul listing alone is one option under study. Another option is a listing alongside one internationally. A domestic listing and a private sale to a strategic investor is a third possibility.
Tadawul, NYSE, LSE or Hong Kong?
The chief executive of the Saudi stock exchange, Khalid al-Hussan, told Reuters in December he believed Tadawul could handle the entirety of the IPO despite having a capitalization of about $450 billion in total. In addition, on Jan.10, the Tadawul announced a series of amendments to trading rules.
Indecision over how and where the giant oil producer will be sold is reportedly causing frustration among company executives, bankers, lawyers and consultants who have been working around the clock for more than a year to prepare the listing. According to news reports investment banks warn the delays risk sparking an exodus of experts from the project.
“Internally, everyone is frustrated,” one person close to the company told the FT while a banker said: “It’s a never ending process.”
Aramco CEO Amin Nasser told CNBC last week his company is ready to list this year, but waiting for a final decision on the listing venue from its sole shareholder-the Saudi government. Aramco’s chairman, Khalid al-Falih, who is also the country’s energy minister told the FT last week that the IPO process is on schedule.
“Aramco will be listed. There is no ifs or buts about it” he said. But he added that: “Tactics have to be worked out and the timing.”
NYSE at the top of Crown Prince's list
Crown Prince bin Salman’s desire to list Saudi Aramco on the NYSE could open the kingdom up to lawsuits from shareholders and 9/11 victims Saudi officials and external advisors have warned according to a report in the Wall Street Journal.
The officials warning on an NYSE listing include Aramco’s chairman, Khalid al-Falih, who is also the country’s energy minister people familiar with the matter told the paper. Family members of those killed in the World Trade Center attack have long sought to press a legal case against Saudi officials, alleging they shielded some of the attackers.
The NYSE is at the top of Prince Mohammed's list because it would gain the company access to a huge pool of investors and international prestige. It could also bolster diplomatic and economic relations with the Trump administration, according to the Journal. US President Donald Trump tweeted in November:
“Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange. Important to the United States!”
Mr. Falih and senior ministers along with company executives, prefers a listing in London, as the British capital might be a better fit because of fewer legal risks.U.K. Prime Minister Theresa May said in November London was “extremely well-placed” to win the listing.
Hong Kong is also in the running. Charles Li, CEO of Hong Kong Exchanges and Clearing told CNBC last week that Aramco will list in Hong Kong eventually, even if the energy company skips over the special administrative region for its first public offering, "it may not be here right away, it may not be here on the first go, but it will be here," he added.
Despite market speculation that the listing could be delayed and regardless of how Aramco decides to go public, one thing is certain, in our opinion: It will be the biggest event in the markets and will have an impact even beyond where it’s listed. Meanwhile, let's take a look at the history of the oil giant.
History of Saudi Aramco
Saudi Aramco, officially the Saudi Arabian Oil Company was founded in 1933 as California-Arabian Standard Oil Company. The king of Saudi Arabia, Abd-al-Aziz ibn Saud, had authorized a team of American engineers to explore the desert bordering the Persian Gulf.
He hoped they would find water. Over several years, they drilled more than half a dozen holes without result. On March 3, 1938 they decided to dig deeper at Dammam Well No. 7 and finally hit what would turn out to be the largest supply of crude oil in the world. A year later the first export of Saudi crude oil was exported out of the country.
In 1944 the name of the company was changed to the Arabian American Oil Company, which becomes better known by its acronym, Aramco. In 1951 Aramco found the first offshore oil field in the Middle East. In the 1970s and ’80s, control gradually passed to the Saudi Arabian government. As a result of a royal decree in 1988 another name change was enacted changing the name from the Arabian American Oil Co. to Saudi Arabian Oil Co. as it is known today.
The company is based in Dhahran and focuses on hydrocarbons exploration, production, refining, distribution, shipping, and marketing crude oil and natural gas liquids. Saudi Arabian Oil is the world’s top exporter of crude oil and natural gas liquids. It employees 65,266 people.
The long-awaited IPO of Saudi Aramco may not see the light of day this year as promised. It could be delayed until 2019 at the earliest, the Financial Times reported, citing British officials briefed on the matter.
The newspaper said London had a "good chance" of securing the listing and the delay came as the oil giant struggled to arrive at a $2 trillion valuation sought by Saudi Crown Prince Mohammed bin Salman. Aramco neither confirmed nor denied the FT report.
Last week, Bloomberg reported that Saudi Energy Minister Khalid al-Falih also suggested the listing might be delayed.
"The only certain thing about the Saudi Aramco IPO is that a) it will happen, b) the anchor market will be the Tadawul exchange in Saudi Arabia," al-Falih told Bloomberg in an interview.
Aramco will delay its international IPO, opting to list its shares only on the Saudi domestic stock market in the second half of this year, the Wall Street Journal reported, citing sources familiar with the situation.
"The Company continues to review options for the listing," the company said in a statement following the reports.
"In addition to listing on Tadawul, the home exchange, a range of international options are still being held under active review. The Company will not provide a running commentary on the course of the IPO."
Aramco said on Sunday it will proceed with an initial public offering on the Main Market of Tadawul, the domestic bourse. The IPO prospectus is expected to be announced on November 10, local media reported.