Saudi Arabia Kick-Starts IPO Of World's Largest Oil Company Aramco

Saudi Arabia's state oil company kick-started its initial public offering (IPO) on Sunday, announcing its intention to list on the domestic bourse as the kingdom seeks to diversify and create the world's most valuable listed company..Aramco did not give a timeframe or say how much of the company it would sell, but sources have told news agency Reuters the oil company could offer 1-2 per cent of its shares on the local bourse, raising as much as $20 billion-$40 billion..Aramco said the IPO would be split into two tranches: one each for institutional and individual investors. The percentage of shares to be sold and the purchase price would be determined after the book-building period, it added in a statement..Confirmation of the share sale in Saudi Arabian Oil Co, or Aramco, as the oil giant is usually known, comes about seven weeks after crippling attacks on its oil facilities, underlining Saudi Arabia's determination to push on with the listing regardless..Aramco said it does not expect the September 14 attack on its oil plants will have a material impact on its business, operations and financial condition..The attacks targeted the Abqaiq and Khurais plants at the heart of Saudi Arabia's oil industry, causing fires and damage and temporarily shutting down 5.7 million barrels per day (bpd) of production - more than 5 per cent of global oil supply..The company did not specific any additional security measures..The IPO of the world's most profitable company is designed to turbocharge Crown Prince Mohammed bin Salman's economic reform agenda by raising billions to diversify the kingdom, whose dependency on oil was highlighted by the production impact of the September attacks.."It is a colossal public offering that could potentially generate more than 10 years' worth of proceeds raised through IPOs in the country," said Salah Shamma, head of investment, MENA, Franklin Templeton Emerging Markets Equity..He said some local investors could be selling other shares in order to shift their investments to Aramco, but this could well be a case of "short-term pain for long-term gain.".Long-Awaited IPO.Aramco plans to release the IPO prospectus on November 9, chief executive Amin Nasser told a news conference in Dhahran, Saudi Arabia..Saudi Aramco chairman Yasir al-Rumayyan told the news conference that the valuation for the company should be determined after the roadshow..At a valuation of $1.5 trillion, Aramco would still be worth at least 50 per cent more than the world's most valuable companies, Microsoft and Apple, which each have a market capitalisation of about $1 trillion..But a 1 per cent sale would raise "only" around $15 billion for Saudi coffers, less than the $25 billion generated by Chinese e-commerce giant Alibaba in its record-breaking IPO in 2014..It would rank Aramco as the 11th biggest IPO of all time, Refinitiv data show. .A sale of 2 per cent of Aramco shares at a $1.5 trillion valuation would make it the biggest IPO of all time, beating Alibaba's..The prospect of the world's largest oil company selling a piece of itself has had Wall Street on tenterhooks since Prince Mohammed flagged it three years ago..Bonus Shares For Saudi Investors.Aramco said in Sunday's statement that it posted a net income of $68 billion during the nine-month period ending on September 30. Revenues and other income related to sales for the same period amounted to $244 billion, it added..To help get the deal done, Saudi Arabia is relying on easy credit for retail investors and hefty contributions from rich locals..Aramco said the Saudi market regulator, which approved its application to list on Sunday, had issued an exemption for non-resident institutional foreign investors to subscribe..Saudi investors would be eligible to receive bonus shares -a maximum of 100 bonus shares for every 10 allotted shares..Saudi nationals would be eligible to receive bonus shares..It said the government will forgo its right to receive a portion of cash dividends on Aramco's shares, giving priority on such distribution to new shareholders..Aramco is cutting the royalties it pays to the Saudi government - to give comfort to investors..Aramco said that, effective January 1 2020, it will adopt a progressive royalty scheme, with a marginal rate set at 15% up to $70 per barrel, 45 per cent between $70 and $100, and 80 per cent if the price rises higher..The listing announcement had been expected on October 20 but was delayed after advisers said they needed more time to lock in cornerstone investors, three sources told Reuters..Valuation Challenge.Although Prince Mohammed put a $2 trillion valuation on the company in early 2016, bankers and company insiders say Aramco's value is closer to $1.5 trillion..A growing movement to fight climate change and embrace new "green" technologies have put some fund managers, particularly in Europe and the United States, off the oil and gas sector..Initial hopes for a blockbuster international listing of about 5 per cent were dashed when the share sale was halted last year amid debate over where to list Aramco overseas..Aramco said the IPO timetable was delayed because it began a process to acquire a 70 per cent stake in petrochemicals maker Saudi Basic Industries Corp..IPO preparations were revived over the summer after Aramco attracted huge interest in its first international bond sale, seen as a pre-IPO relationship-building exercise with investors..The bond sale forced the secretive company to reveal its finances for the first time, including net income of $111 billion, over a third bigger than the combined net income of the five super majors Exxon Mobil, Royal Dutch/Shell, BP, Chevron and Total..Oil majors have been raising payouts to shareholders to counter rising pressure from climate activism..Aramco said on Sunday it intended to declare aggregate ordinary cash dividends of at least $75 billion in 2020..At a valuation of $1.5 trillion, this would mean a dividend yield of 5 per cent, below that offered by rival Royal Dutch Shell. Shell's dividend yield is over 6 per cent, according to Refinitiv data..More than two dozen banks are handling the blockbustre IPO..Among them, Citigroup, Credit Suisse, Goldman Sachs, HSBC, JPMorgan, Bank of America Merrill Lynch, Morgan Stanley, NCB Capital and Samba Capital & Investment Management Co are joint financial advisors, joint global coordinators and joint bookrunners..Al Rajhi Capital, EFG Hermes, GIB Capital, Riyad Capital and Saudi Fransi Capital have been appointed by the company as domestic joint bookrunners..Lazard Freres SAS, M. Klein and Co and Moelis have been acting as special advisors to the company, the Aramco statement said.

Saudi Arabia Kick-Starts IPO Of World's Largest Oil Company Aramco

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