Dubai: When news broke that the world's most profitable company in the world would be listed, there was a global murmur of interest.
Saudi Arabia's state oil giant Aramco is all set to start the offer period on November 17 and close on December 4. The company will price its shares on December 5, with trading on the Saudi stock exchange — the Tadawul — expected to start in mid-December.
What is an IPO?
Initial public offering (IPO) is the process by which a private company can go public by sale of its stocks to the general public.
The number of shares listed is usually a percentage of total stock which allows the company to raise capital when buyers purchase the shares.
The buyers could be either institutional or individual or both — this is pre-determined by the company. The company initiating the IPO is subject to stringent regulations aimed at maintaning transparency and accountability for public shareholders.
As mentioned in the IPO prospectus released by Aramco, Saudi Arabian Oil Company (Saudi Aramco) was originally established in the Kingdom of Saudi Arabia in 1988 as a company wholly owned by the Saudi government.
The share capital of the firm (fully paid up) sixty billion Saudi Riyals (SAR), which is approximately US$16 billion. This capital translates to 200 billion ordinary shares, all owned by the Saudi government.
Aramco is the world's largest oil company. It is also currently the most profitable company in the world — at almost double the profitability of runner-up Apple Inc., based on the 2019 listing by Fortune.
In 2018, the company announced profits of around US$111 million.
The IPO will, for the first time ever, open up ownership of the government-owned Aramco to public investors.
The biggest IPO ever?
The current record-holder for the biggest IPO is Alibaba, the Chinese e-commerce giant, at a 2014 listing worth US$25 billion.
The Aramco IPO, according to initial estimates, is expected to bring in US$40 billion; this is based on the company's estimated valuation aimed to be US$2 trillion.
This would easily break the record for the biggest IPO ever. It is expected that the firm may list 1 to 2 per cent of their total stock, though no official announcement has been made yet.
In a regular IPO, the company and its underwriters (financial advisors) work together to come up with a share price and thereby a valuation.
The prices will be based on market factors but are also influenced by pre-IPO factors such as the structure of the company, number of shares sold or listed, share prices of similar companies, growth potential and demand from potential investors.
Other joint bookrunners include Al Rajhi Capital, Banco Santander, BNP PARIBAS, BOC International, Credit Agricole CIB, Deutsche Bank, EFG Hermes, First Abu Dhabi Bank, GIB Capital, Mizuho International, RBC Capital Markets, Riyad Capital, Saudi Fransi Capital, Société Générale, SMBC Nikko and UBS Investment Bank. Special advisors as per the prospectus are Lazard, M. Klein & Company and Moelis & Company.
The Lead Manager of the IPO is Samba Capital and international settlement agent is HSBC while the stabilising manager is Goldman Sachs International.
The prospectus details that the final offer price will be announced on December 5.
Where and when
The Aramco shares will only be listed on Saudi Arabia's own Tadawul exchange. Founded in 2007, the stock exchange is relatively young and started accepting foreign investors four years ago.
The IPO offer period or book-building period is from November 17 to December 4 for institutional investors and November 17 to November 28 for individual investors.
How many shares will be listed?
As we said earlier, the number of shares is determined by the company for the IPO. In Aramco's case, the company is yet to announce the planned percentage of listed stock for investors.
However, for retail or individual investors, the prospectus mentioned a target stock percentage of 0.5 per cent.
Can I buy Aramco shares?
The retail, or individual, investor offer is from November 17 to 28. This offer ends days before the end date for institutional investors (organisations that invest on behalf of their members).
According to the prospectus, to buy an Aramco share, you must fulfill one or more of the following conditions:
- Saudi Arabian nationals, including any Saudi female divorcee or widow with minor children from a marriage to a non-Saudi person. In this case the widow/divorcee can subscribe for her own benefit or in the names of her minor children after she proves her situation.
- Any non-Saudi natural person who is a resident in the Kingdom
- Any GCC national
These individual investors are required to have a bank account with one of the "Receiving Entities" (listed later).
Each individual investor is required to subscribe for his or her preferred number of shares in multiples of ten, for example, 10, 20, 30 etc. using a "Retail Subscription Form" available at specified entities.
Since the final offer price will only be announced after the book-building period, there maybe a difference in the 'retail subscription price' and the 'final offer price'.
If there is a such a difference, the investor can choose to get the difference in cash by crediting the investor's account or to get additional offer shares worth the difference, at the discretion of the company and the joint bookrunners and advisors.
Individual investors can contact the lead manager or the branch of the 'receiving entities' where they submitted their Retail Subscription Form for any further information on final offer price.
Bonus shares are given at the discretion of the company depending on number of shares already in possession. For this IPO, bonus share eligible investors are defined as:
"A Saudi Arabian national, including a Saudi female divorcee or widow with minor Saudi children; provided that if a Retail Subscription Form is submitted for a Saudi Arabian national applying for himself orherself and other persons appearing on such national’s family identification card, then each such Saudi Arabian family member will be considered to be an Eligible Retail Bonus Investor."
In this case, if the eligible investor holds his subsribed shares for a minimum period of 180 days, he or she will be eligible to receive one bonus share for every ten offer shares purchased at the beginning - to a maximum of 100 bonus shares.
Which are the Receiving Entities?
National Commercial Bank
Saudi British Bank
Samba Financial Group
Al Rajhi Bank
Arab National Bank
Gulf International Bank
Banque Saudi Fransi
The Saudi Investment Bank
The IPO is set to start on November 17 while the final offer price is set to be announced on December 5.
The prospectus said the government will have a “statutory lockup period” for disposing of any shares after the listing for six months, and a contractual lockup period for 12 months. Aramco cannot list additional shares for a period of six months after trading starts, and will also be restricted from issuing additional shares for 12 months.
Why is the IPO such a big deal?
The sale of part of Aramco forms the foundation of Crown Prince Mohammed bin Salman's turnaround plan for Saudi Arabia. The size of the listing remains in the air, but originally it was hoped it could generate as much as $100 billion (Dh367 billion).
That money is needed to fund mega-projects such as NEOM, a $500 billion futuristic mega city planned on the northern Red Sea coast, which officials say will have flying taxis and talking robots.
With inputs from Saudi Aramco Prospectus and news agencies