WORLD’S BIGGEST, WORLD’S GREATEST

Saudi Arabia 2017 | ENERGY | FOCUS: SAUDI ARAMCO IPO

Global markets are eagerly anticipating the biggest IPO in history as the government gets set to put a portion of Saudi Aramco to market.

In a bid to revitalize the capital markets, further encourage foreign investors, and diversify the economy away from oil and gas, Saudi Arabia is gearing up for an IPO of Saudi Aramco, the state oil giant.

According to government estimates, Saudi Aramco, which generates over USD1 billion per day, is said to be valued at a whopping USD2 trillion. This value rests primarily on the company's crude oil production of 10.2 million barrels per day (bpd), equal to the entire amount produced in the US per day. It also includes production of 1.5 million bpd of natural gas liquids and more than 10 billion cubic feet per day of natural gas.
Moreover, the giant has rights to the largest recoverable oil reserves in the world at 267 billion barrels. These reserves are also easier and cheaper to extract than in any country, given Aramco's long-term investment in technologies and energy infrastructure. In addition to these rights, the company's assets also include a number of leading refineries and joint ventures with the biggest names in global energy, such as Saudi Aramco Mobile Refinery Company (SAMREF), Saudi Aramco Shell Refining Company (SASREF), and Yanbu Aramco Sinopec Refining Company (YASREF).

According to the Vision 2030 blueprint, a stake of just 5% will be made public. Nonetheless, this will still generate around USD100 billion—far exceeding Alibaba's USD25 billion listing on the NYSE, the biggest IPO to date.

In February 2017, global-powerhouses Morgan Stanley, JPMorgan, and HSBC were named as the underwriters for the offering. Yet, it was Moelis & Company, a boutique investment firm from New York, which stole the headlines for landing its biggest advisory mandate yet for the IPO. The advisors are now in the process of restructuring Aramco internally to make it more attractive, efficient, and transparent for investors.
In terms of timing, the IPO was scheduled to take place in early 2018. Although, as TBY has heard in interviews with key players in the Kingdom's finance and energy sectors, this is likely to be pushed to late 2018, if not early 2019. Saudi's Tadawul will be the natural home of the listing, while it has also been made clear that there will be multiple listings, with New York, London, and Hong Kong each eyeing their place in the history books.
Yet, it is back in the Kingdom where the historical significance of Aramco's offering will be felt most. As outlined by Vision 2030, the ownership of Saudi Aramco will be transferred to the Public Investment Fund (PIF), Saudi Arabia's main investment arm. Already valued at over USD100 billion with key domestic assets through stakes in SABIC and National Commercial Bank, PIF is on course to become the world's biggest fund once Aramco's partial sale materializes.

As an indication of how the USD100 billion proceeds will be channeled, PIF has attracted global attention over the past 12 months through its strategic investments in innovation and advanced technologies. In particular, in May 2017 the fund confirmed its USD45 billion commitment to Softbank's Vision Fund, headed by Japanese tech-visionary Masayoshi Son. The initiative has raised a massive USD93 billion, making it the biggest private equity fund in the world. PIF has likewise pledged multi-billion investments into car-hire firm Uber as well as a joint venture with Dubai's Mohammed Alabbar to create the Middle East's future e-commerce giant, Noon, signaling the Kingdom's long-term, technology-driven objectives.

Perhaps the true benefits of Saudi Aramco's historic offering are best summed up the Crown Prince himself: “IPOing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil."