Saudi Arabia has given the go-ahead to the long-delayed sale of its giant state-owned oil company, Aramco, in what will be the biggest stock market flotation in history.
The milestone market debut could value Saudi Aramco at $1.5tn – significantly below initial expectations of up to $2tn – and will allow the most polluting company in the world the chance to court international investors for the first time.
Despite the lower valuation Aramco’s IPO (initial public offering) will be the biggest in history, raising $40-$45bn, surpassing the record $25bn raised by China’s tech giant Alibaba in 2015.
But in further signs of behind-the-scenes wrangling the precise details of the offer price and amount of shares available are not expected to be released until 9 November, with full trading slated to begin around 12 December.
It is understood that only a small portion of shares will be released on to the Riyadh market, likely to be in the range of 1% to 3% of the total stock.
The size and scale of Saudi Aramco – even at the lower range of valuation estimates it will be 50% bigger than the next largest stock market-traded firm in the world – are likely to require the financial liquidity only available on the globe’s biggest exchanges, such as Wall Street or London.
The company supplies 13% of the world’s oil, and earlier this year revealed half-year profits of $46.9bn, or more than the next six biggest oil companies combined.
Yasir al-Rumayyan, the chairman of Saudi Aramco, said: “Today marks a significant milestone in the history of the Company and important progress towards delivering Saudi Vision 2030, the kingdom’s blueprint for sustained economic diversification and growth.”
Saudi Arabia is expected to use the listing to leverage its vast fossil fuel reserves to help modernise its economy and gain international acceptance despite its troubling human rights record.
But the flotation is hugely controversial among environmentalists and campaigners pushing to keep fossil fuels from being burnt and further fuelling the climate crisis.
An investigation by the Guardian revealed that the oil giant is responsible for 4.38% of the world’s carbon emissions since 1965, with green groups warning that the company’s float undermines global efforts to tackle the climate crisis.
The flotation documents detail the vast scale of Saudi Aramco. The company “lifts” 11.6m barrels of oil every day, and has reserves of 227m barrels.
It costs just $2.80 for the company to lift each barrel of oil, compared with the $62 current price on world markets, resulting in vast profits. It said its operating cashflow in 2018 was $121bn, and that it will pay out dividends worth $75bn this year.
In a bid to reassure potential investors, the Saudi government said it will forego its share of dividends in the event of an oil price collapse, effectively creating a company that guarantees dividends of $75bn a year.
The documents also reveal that the drone attack on Aramco’s facilities in September cost it $28m, a sum that is so insignificant to the company’s scale that it was not material to the accounts.
The float is expected to hand a $450m windfall to a string of major international banks and advisers.
The banks confirmed in the IPO announcement include: Citigroup, Credit Suisse, Goldman Sachs, HSBC, JP Morgan, Merrill Lynch and Morgan Stanley. Saudi Arabia’s National Commercial Bank (NCB) and Riyadh-based Samba Capital have also advised on the deal.
The likely valuation of $1.5tn-$1.6tn is a defeat for the aspirations of Saudi Arabia’s crown prince Mohammed bin Salman who proposed the historic market listing three years ago, and signalled a $2tn valuation. Since then Bin Salman has appealed to Saudi Arabia’s richest families to help support the flotation by buying up a stake in the company, and recruited a team of western banks to help support the listing.
Historically Aramco – which stands for Arabian-American oil company – has had close links with US oil interests and American banks. Despite the Wall Street investment banks dominating the list of advisers, the flotation has mostly been handled by teams from the London offices. At Riyadh’s King Khalid airport, it is British Airways flights to and from London Heathrow said to be busiest with bankers.