News of a potential sale of shares in Saudi Aramco, the state-owned oil giant in Saudi Arabia, had investors round the world salivating at the thought of getting a bite at what is indisputably the world’s most valuable company.
When it comes to oil companies or for that matter any other form of company, there is nothing in the world that compares to Saudi Aramco. The state-owned oil company of Saudi Arabia sits on roughly 260 billion barrels of oil reserves, which is more than 15 percent of known global oil reserves. It produces around 10 million barrels of oil per day, which is 10 percent of the world’s daily oil supply and three times as much as the production by the world’s largest listed company, the US-based Exxon Mobil Corporation. The company’s value has been estimated in trillions of dollars, nearly ten times the current most valuable company, Apple Inc.
On Friday, Aramco said it was considering “the listing in capital markets of an appropriate percentage of the company’s shares or the listing of a bundle of its downstream subsidiaries.” Analysts believe that it is highly unlikely that the Kingdom will list shares in the parent company, as any such listing would open it up to scrutiny about financial controls and lift the veil on information about the company and its actual reserves, which the government regards as state secrets.
What is far more likely is that the government will list parts of Aramco’s refining and chemical operations. But even this is expected to be significant, given the size of those businesses. For instance, when the company’s domestic refining operations at its Sadara Chemical Company complex in the eastern city of Jubail starts full production in 2017, it will be the largest petrochemicals project ever built with a US$20 billion price tag. The complex has already been earmarked for an IPO and if it is added to all of Aramco’s other domestic refinery and petrochemical facilities, the resulting company would by itself be one of the largest of its type in the world.
The notion of a public share offering was still under review and would have to be approved by the company’s board of directors and its supreme council, which includes oil minister Ali al-Naimi and Mohammad bin Salman Al Saud, Saudi Arabia’s powerful deputy crown prince. It was Prince Mohammad who first revealed the idea of the possible listing in a recent media interview, saying that a decision would be made within months.
Prince Salman, who is also chairman of his country's new Council of Economic and Development Affairs, which has broad authority over the economy, said the government would also consider selling a range of state assets in healthcare, education and some military industries. "It will decrease some of the pressure that the government has, and some of them may create good profit,” he said.
While analysts find it strange that Aramco would list its shares at a time when the oil market is in the midst of a deep price collapse, dropping more than two-thirds over the past 18 months to the lowest levels in more than a decade, the sale would help bolster the kingdom’s coffers.
Floating Saudi Aramco shares on the Saudi Arabian stock exchange, known as the Tadawul, may sound like a radical move by Riyadh, but the kingdom’s foreign reserves are shrinking — down 15 percent to $635.5 billion at the end of November, from a peak of $746 billion in August last year. Also, last year, Saudi Arabia ran a record deficit of nearly $98 billion, and late last month it announced expenditure and subsidy cuts for 2016 to keep its widening deficit in check.
An IPO even if it is very small will make Aramco more efficient and more cost effective through transparency. Moreover, it would allow Saudi Arabia to raise a large sum of money that could probably allow the energy giant to weather low crude prices for a few more years; even if only 20 percent of Aramco was sold it would fund Saudi Arabia's budget for a whole year.