Saudi Arabia officially launched its first public offering of state-run Saudi Aramco on Sunday, which will see a batch of shares on the local bourse hoping to raise billions of dollars to the kingdom.
Initial plans call for the company’s shares to be traded on the Riyadh Stock Exchange and later put other shares on foreign exchanges. Prince Mohammed hopes to reach a very optimistic assessment of $ 2 trillion from Aramco, which produces 10 million barrels per day of crude oil and provides about 10% of global demand. This would generate $100 billion in revenue for his ambitious plans to redevelop Saudi Arabia to secure new jobs, with unemployment at over 10 percent.
However, economic concerns and the trade war between China and the US and increased crude oil production by the US may lower energy prices. The September 14 attack aimed at Aramco has already frightened some investors, with one of the more popular rating companies lowered the oil giant’s value. The announcement issued by the Capital Market Authority did not provide any timetable for subscription.
“The Capital Market Authority board has issued its resolution approving the Saudi Arabian Oil Co. application for the registration and offering of part of its shares,” the statement said.
Saudi-owned channel Al Arabiya said last week, citing anonymous sources, that pricing of shares would begin on November 17. The channel said the final share price will be set on Dec. 4, with shares starting trading on Dec. 11. The kingdom has in the past used the giant when it was still an American company. But since the 100% purchase in the company before 1980, the royal family is considered to be largely sole contribution, and did not interfere with the company’s long-term business decisions. Its revenues provide about 60% of all government revenues.
Recently, however, there have been decisions that forced Aramco to buy part of Saudi Basic Industries Corp. for $70 billion in a month before SABIC reported a quarterly profit decline.
In its preliminary half-year results, Aramco reported revenue of $46.8 billion. By announcing the IPO on Sunday, Prince Mohammed may be convinced of a lower valuation for the IPO. The kingdom is likely to pin its hopes on the huge domestic interest in raising the value of the company before it is likely to take some shares abroad.
Analysts believe Aramco will list up to 3% of the company in trading, with another 2% being put abroad.
Saudi Aramco has sought to reassure investors, given questions about its valuation and the potential risks of future attacks or geopolitical risks. The offer, posted on Aramco’s website last month, announced its intention to provide investors with a return of $75 billion in 2020.
But unlike stocks, fears persist that Saudi Arabia could face other attacks such as the Sept. 14 attack, in which the United States blames Iran. Iran in turn denies launching missiles and drones used in the attack. The Houthi rebels have claimed responsibility, but analysts say the weapons used in the attack are difficult for the Houthis to own.