Why there’s a wave of optimism in Saudi Arabia
Many see Aramco as a unique investment opportunity, one that has spurred global interest
There is a wave of brimming optimism among the people of Saudi Arabia.
Last week, the authorities formally announced that plans for the long-anticipated sale of Saudi Aramco shares have just about been wrapped up and the IPO is expected to hit the domestic market next month.
In a statement released last Sunday, the Capital Market Authority (CMA) board had issued a resolution approving Aramco’s “application for the registration and offering of part of its shares. The company’s prospectus will be published prior to the start of the subscription period”.
The CMA is a government organisation applying full financial, legal, and administrative independence and reports directly to the Crown Prince. Some readers may not be aware of it, but Aramco is the world’s largest company with a valuation estimated between $1.7 trillion (Dh6.2 trillion) to $2.3 trillion, a figure larger than the combined assets of Apple and Microsoft. It is also the world’s most profitable company.
Aramco is so much bigger than its nearest competitor Exxon Mobil of the US that a comparison of third quarter income of $21 billion to $3 billion throws light on the strength of the company and its reserves. The economic muscle of the company to most minds is simply unimaginable. In 2018 alone, the net profit of Aramco stood at $111 billion, a figure that exceeds the combined profit of 10 of the largest corporations in the US.
Saudis are well aware that, when it comes to oil reserves, Aramco is the world’s undisputed best. The company reserves are estimated at around 60 years of production, which is more than three times its western rivals (ExxonMobil, Shell, Chevron, Total, BV)
World’s undisputed best
While there have been doubters among some global investors, most Saudis see no such barriers to a solid investment in a company that is most likely to yield profitable returns in years to come.
In fact, Aramco has announced a dividend payment of $75 billion to its shareholders even before a single share has been sold! The figure translates to the equivalent to 3.75 per cent on the share price assuming a market value of $2 trillion. This is much in line with global oil and gas sector indices.
Saudis are well aware that, when it comes to oil reserves, Aramco is the world’s undisputed best. The company reserves are estimated at around 60 years of production, which is more than three times its western rivals (ExxonMobil, Shell, Chevron, Total, BV).
They also know that fossil fuels (oil and gas) will still account for 50 per cent of the global energy component during the next 30 years. Aramco also has comparative corporate advantages, such as high financial and operational efficiency, low oil production costs and 60 years’ worth of oil reserves.
Initially, the sale of two to three per cent of the company is expected to be available to the domestic market, with more shares being available for foreign consumption later on.
An estimate of 5 per cent of the company’s stock has been floating around as the initial offering for both the domestic and international markets.
Some countries such as China and Malaysia have already publicly announced their intentions to grab a significant chunk of available stock once they are on the market. The Chinese have thrown a figure of $10 billion (Dh36.7 billion), while the Malaysians are not that far behind.
The Saudi investor is aware that Aramco stands among the most glittering blue-chip companies out there and their announced dividends and payoffs make investment a very attractive business move.
While the very rich have most likely allocated a significant portion of their wealth to the impending IPO, many average Saudis have begun salting away a portion of their disposable income for a slice of the pie. Many are aware that this is not a quick turnaround investment but one that is geared towards medium and long term returns.
It is an investment for the future for the individual and one that spells an investment for the country. They see it as a unique investment opportunity, one that has geared up global interest and one whose shares have only one place to go and that is upwards.
Shares purchased now will spell a degree of financial comfort for the future, not forgetting those sweet annual dividend pay-offs.
With tensions easing around the Gulf and global stability sweeping the region, the optimism by the Saudis has risen, and that translates to spending money to make more money. The Aramco IPO is just the vehicle for such optimism.
—Tariq A. Al Maeena is a Saudi socio-political commentator. He lives in Jeddah, Saudi Arabia. Twitter: @talmaeena