Saudi Aramco

Saudi Aramco confirms that it will weigh a public offering of shares in a move that could possibly be the most valuable listed company in the world. The plan would essentially help the kingdoms very constrained finances as a result of continued low prices in oil, would also be the biggest IPO (initial public offering) in stock market history.

If Aramco were to list 10% of shares, that could be upwards of $240 billion, this of course comes from analyst who valued the company to be over $2.5 trillion in total. (Yeah I know...) At this current moment Apple is the worlds most valuable company, coming in at $535 billion, prior to Apple the biggest IPO ever was a company in China called Alibaba and they were worth $25 billion.

Aramco issued a statement recently stating that it has been studying various options to allow public participation in its equity through the listing in the capital markets of an appropriate percentage of the company's shares, and the listing of a bundle which would be its downstream subsidiaries.

After the statement was issued, there was then an interview with The Economist, with the kingdom's deputy crown prince Mohammed bin Salman, who stated that a decision on a potential flotation will indeed be made in the next few month.

"Personally I'm enthusiastic about this step," Prince Mohammed said. "I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that my be circling around Aramco."

The proposal was consistent with the kingdoms plans to privatise various parts of the economy and to deregulate various markets, said by Saudi Aramco. This process will strengthen the company’s focus on its long term vision of becoming the world’s leading energy and chemical enterprise.

Middle East economist, Jason Tuvey, with the London-based research consultancy Capital Economics, said that Saudi Aramco “could be worth anything from US$1trillion to $10tn”. (yeah I know) It's estimated that the Saudi company has oil reserves of about 260 billion barrels, (lets do some here) which would mean that on a conservative estimate of $10 per barrel, it would be worth at least $2.5 trillion.

It's highly unlikely that the government will cease control over Saudi Aramco’s operations, and if an IPO takes place the size of the stake floated would be relatively small (possibly just 5 per cent). Full privatisations of subsidiaries and downstream operations are possible, however, stated by Mr. Tuvey.

Ehsan Ul Haq, a senior oil market consultant at KBC Energy Economics, believes that Aramco itself will need to become much more transparent to attract investors. “An IPO will make the thorough auditing of Aramco necessary, which would require not only an open organisation within the company but also to let others look at its oil reserves. Some people have expressed doubts about the kingdom’s oil reserves in the past,” he said.

Despite this, he believes that an IPO would be well supported, although he also expressed doubts about how much of the company’s shares would be made available – especially to overseas corporations.

Mr Tuvey agreed. “I suspect that even with low oil prices, investors would be keen to grab a slice of what is arguably the world’s most valuable company and one of the most efficiently run firms in the kingdom,” he said.

This flotation would provide a much-needed source of income for Saudi Arabia at a time when low oil prices have played a havoc with its revenues, curtailing the speed of its diversification efforts. With the prospect of such a big IPO, investment banks and other advisers anticipate big fees. Advisers are yet to be named, there have also been speculation that HSBC and JP Morgan would be in the right position as long-standing bankers to the kingdom.