Saudi Aramco’s Ras Tanura oil refinery
File picture of Saudi Aramco’s Ras Tanura oil refinery. The upcoming IPO will finally give some needed impetus to the kingdom's investment space. Image Credit: Reuters

(Bloomberg): Saudi Arabia has finally kicked off what could be the world’s biggest initial public offering.

More than three years after Crown Prince Mohammed bin Salman first raised the idea - and just three weeks after a plan to launch the share sale was abruptly shelved - the Saudi Capital Market Authority approved Aramco’s offering. The shares are likely to start trading in December.

The approval shall be valid for six months, and the company’s prospectus will be published prior to the start of the subscription period, according to the statement.

Aramco could be listed before the end of the year, in which case the world’s most valuable company will no longer be traded in the US but on the Saudi bourse. The exchange lifted restrictions on foreign investors four years ago.

Aramco generated the most profit of any corporation last year with net income of $111 billion - more than Apple Inc., Google’s parent Alphabet Inc. and Exxon Mobil Corp. combined. The company was targeting a $2 trillion valuation - more than double that of Apple - although some analysts see about $1.5 trillion as more realistic.

The sale is key to Prince Mohammed’s Vision 2030 plan to overhaul the Saudi economy and end the kingdom’s reliance on oil exports. The proceeds from the IPO will boost the firepower of the OPEC nation’s sovereign wealth fund, which already has investments in funds managed by Blackstone Group LP and SoftBank Group Corp.

Intense competition

Grabbing a role on the deal has been one of the most hotly contested mandates for global banks. More than 20 have been mandated, with the top roles going to firms including Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co.

But the path to the IPO announcement hasn’t been smooth. Prince Mohammed’s insistence the company is worth $2 trillion was met with skepticism from the international investment community. The original plan to list Aramco in either New York or London has been dropped in favor of a Riyadh-only flotation.

Pitching in

To get the deal done, Aramco’s bankers will need hefty contributions from the kingdom’s wealthiest families.

Aramco must also contend with the strengthening global movement against climate change that’s targeted the world’s largest oil and gas companies. Many fund managers are concerned the shift away from the international combustion engine - a technology that drove a century of steadily rising demand - means consumption will peak in the next two decades.

The company has been tiptoeing toward the greater disclosure required of publicly traded firms. Aramco published annual financial statements for the first time in April, ahead of a $12 billion bond sale. In August, the company hosted its first earnings call with analysts.

IPO assurances
* Investors who buy into the IPO have been guaranteed that the dividend won’t fall until after 2024, regardless of what happens to oil prices. Instead, Aramco will cut back on payouts to the government if it has to reduce the total dividend to less than $75 billion.
* Saudi Arabia has also adjusted the royalty payments it charges Aramco. As of January, the royalty it pays for Brent crude prices below $70 a barrel is falling to 15 per cent from 20 per cent. The new rates are above previous ones on higher oil prices.