Aramco IPO: What's True, What's Not, What It Means For Investors
Ellen Wald, PhD | Jan 25, 2017 22:05
A bit more than a year ago Saudi Arabia believe that the Saudis will, in the end, renege.
A year after the Saudi announcement however, it seems to most observers that the Saudis are serious about this IPO. Here is a look at where the Aramco IPO process stands and what investors need to know.
Timing: 2nd or 3rd Quarter of 2018
According to the latest from Aramco CEO Amin Nasser, the Aramco IPO is on track to take place during the second or third quarter of 2018. This depends, however, on whether Aramco is able to complete the financial restructuring required in order to adhere to international standards. Among other things, Aramco needs to change its tax structure. According to Nasser, Aramco pays a 20% royalty to the Saudi government, along with an 85% income tax. Aramco’s tax rate needs to be brought down so that the company’s tax burden is more in line with other publicly-listed oil companies.
Markets: Tadawul (Saudi stock market) and several others
Aramco is considering listing on possible exchanges include London, Tokyo, or Hong Kong. It is also likely that Aramco shares will be available globally through other funds that invest in the Saudi market.
Banks: JP Morgan Chase & Co. and others
Currently, JP Morgan (NYSE:JPM) and Michael Klein, a former Citigroup investment banker who now runs his own firm, are advising Aramco on getting the company in the best financial shape for the IPO. Just this week, Aramco invited other banks to submit pitches for additional advisory roles in the IPO, including (so far): Goldman Sachs (NYSE:GS) and HSBC (NYSE:HSBC). The company is also looking for lenders. Morgan Stanley (NYSE:MS) and Credit Suisse (NYSE:CS) are rumored to be interested. Boutique firms Evercore Partners Inc. and Moelis & Co. are shortlisted as financial advisors for the IPO.
Valuation: $100 Billion for 5% of the company
Aramco plans to float largest IPO ever.
Some analysts believe that Saudi Arabia’s decision to exclude the country’s oil reserves from the IPO will diminish Aramco’s worth significantly. CEO Amin Nasser explained that the Saudi government actually owns all of Saudi Arabia’s reserves (Aramco has the exclusive right to exploit those reserves) and that information about these reserves is considered a matter of national security. That's because Saudi Arabia does not want to have information about the size, health and location of the reserves subject to independent verification.
Even without including Saudi Arabia’s oil reserves in the company’s listing, Aramco’s significant upstream, midstream and downstream industries—along with its R&D and numerous other holdings in a variety of sectors—are substantial enough that a total valuation in the trillion dollar range may be indicated.
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