Saudi Arabia is on the cusp of completing one of the biggest flotation in the capital markets. For the longest time, investors have awaited the listing of state-owned oil firm, Saudi Aramco, shares in the market.
Aramco continues to elicit strong interest in the financial markets due to the enormous reserves and free cash flow backing it. Ahead of the much-awaited Initial Public Offerings below are some of the things you should know.
IPO Date And Pricing
Prospectus shedding insight on the much-awaited IPO will be released on November 9. The prospectus should shed light on the listing of the shares on the Saudi Tadawul Stock Exchange in December. While the company is, yet to say for how much the shares will go for and how much money it plans to raise, observers expect the company to float between 1% and 2% of its shares.
Issuance of 1% to 2% of the company’s shares should allow the company to raise between $20 billion and $40 billion depending on the pricing of each share. The valuation would make it the largest ever flotation in history.
Various investment banks have provided varying estimates on the valuation of the oil group upon listing of its stock. Analysts at America Merrill Lynch believe the IPO will value the oil group at between $1.2 trillion and $2.3 trillion. Goldman Sachs, on its part, values the oil group at between $1.6 trillion and $2.3 trillion on oil prices stabilizing above $60 a barrel.
Ahead of the planned IPO, Saudi Aramco remains the most valuable company. The company generated $111 billion net income in 2018, nearly twice, what Apple made. However, the company’s earnings took a hit in the first half of 2019, coming in at $46.9 million, compared to $53 billion reported the same period last year.
A decline in net income stemmed from lower oil prices. Amidst the slump, the oil juggernaut confirmed plans to pay a special $20 billion dividend to its biggest shareholder, the Saudi Kingdom. Low debt levels supplemented by huge cash reserves are some of the fundamentals that continue to trigger demand for the IPO.
In addition, Aramco boasts of vast reserves amounting to 263 billion barrels of oil and 320 trillion cubic feet of natural gas.
Amidst all the fundamentals, working in favor of the Saudi Aramco, there are a number of risks that investors will have to watch out for. For starters, geopolitical tension in the Middle East is one of the biggest risks that investors will have to factor.
The bombing of oil crude production & refinery facilities, as well as shipping vessels, continues to arouse serious concerns. Geopolitical tension continues to take a toll on oil prices a development that affects the company’s ability to generate optimum returns.
In addition to geopolitical tensions, Saudi government’s influence on the company, as well as dozens of local subsidiaries, is another tailwind that investors must take into consideration.