MercoPress. South Atlantic News Agency

Saudi Arabia seeks to diversify economy, floats oil giant Aramco in search of funds

Aramco, the world's most profitable company, offered few specifics on the number of shares to be sold, pricing or the date for a launch.

Saudi Arabia's giant state oil company finally kick-started its initial public offering (IPO) on Sunday, announcing its intention to float on the domestic bourse in what could be the world's biggest listing as the kingdom seeks to diversify its economy away from oil.

But in its long-awaited announcement, Aramco, the world's most profitable company, offered few specifics on the number of shares to be sold, pricing or the date for a launch.

Bankers have told the Saudi government that investors will likely value the company at around US$1.5 trillion, below the US$2 trillion valuation touted by Crown Prince Mohammed bin Salman when he first floated the idea of an IPO nearly four years ago.

Aramco also did not mention what measures it has taken to beef up security following unprecedented attacks on its oil plants in September.

Market sources said the oil company could offer 1per cent-2per cent of its shares on the local bourse, raising as much as US$20 billion to US$40 billion. A deal over US$25 billion would top the record-breaking one of Chinese e-commerce giant Alibaba in 2014.

“Today is the right opportunity for new investors to reap the benefits of Aramco's ability to achieve value, and boost it on the long-term,” Aramco Chairman Yasir al-Rumayyan told a news conference at the company's headquarters in the eastern city of Dhahran.

The company will spend the next 10 days talking to investors and sounding out their interest and the price range will follow, he said.

The IPO is designed to turbo-charge Prince Mohammed's ambitious economic reform agenda by raising billions to build non-energy industries and diversify revenue streams.

Rumayyan said a decision on an international listing for Aramco shares will be made in the future, without giving a time frame or possible venue.

”Selling a small piece of Aramco in a captive market gives the KSA (Kingdom of Saudi Arabia) more control to prop the value of Aramco up over its fair value,” said Gary Ross, CEO at Black Gold Investors.

Confirmation of the sale of shares in the oil giant, whose formal name is Saudi Arabian Oil Co, comes about seven weeks after the 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 Sept. 14 attacks, which targeted plants at the heart of Saudi Arabia's oil industry and initially halved its production, would have a material impact on its business, operations and financial condition.

Aramco accounted for about one in every eight barrels of crude oil produced globally from 2016 to 2018, it said on Sunday.

Chief Executive Amin Nasser said at the news conference that Aramco plans to release the prospectus on Nov. 9.

To help get the deal done, Saudi Arabia is relying on easy credit for retail investors and hefty contributions from rich locals.

To comfort investors, Aramco said on Sunday the state will forgo its right to receive a portion of cash dividends on shares, giving priority to new shareholders.

Aramco is also cutting royalties it pays to the state. Effective Jan. 1, 2020, it will adopt a progressive royalty scheme, with a marginal rate set at 15per cent up to US$70 per barrel, 45per cent between US$70 and US$100, and 80per cent if the price rises higher.

The firm said the Saudi market regulator, which approved the application to list on Sunday, issued an exemption for non-resident institutional foreign investors to subscribe.