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Saudi Aramco IPO – Are we set for the biggest IPO in history?

Ben Weiss, Monday, 9 September 2019

Saudi Aramco oil
In a year of major IPOs, another one is on the horizon… and it might very well be the largest of them all. Saudi Aramco looks set to finally go public, but what is it, when will it go public and are we set to have the biggest IPO in history?

What is Saudi Aramco?

Saudi Aramco is a state-owned oil company. It was created in 1933, when an agreement between Saudi Arabia and the Standard Oil Company of California was struck and a resulting subsidiary firm was born.

After innovation in the Arabian desert, the California Arabian Standard Oil Company began to prosper. From 1939, where it exported its first tanker of petroleum oil, the company began to smash through milestones. Ten years on, oil production reached 500,000 BPD (barrels per day). In 1976, Aramco became the first company to produce over three billion barrels of oil in a year.

In 1980, the Saudi government purchased the firm outright and has since made ties all around the world to develop the growth and establish Aramco as one of the largest firms in the world. In 2018, Saudi Aramco released financial data showing it to be the most profitable company in the world.

When is Saudi Aramco going public?

Talks of Aramco going public have been in the offering since 2016, but a few different events have delayed this – such as a fall in oil prices and ventures into other business investments. CFO, Khalid al-Dabbagh, recently said it’s ready for its IPO but exact timings will depend on when the ‘optimum market condition’ would be. With JP Morgan looking to be the lead contender to assist with the IPO, it seems the process is in full swing.

However, it is highly unlikely that Aramco will be able, nor want, to push its IPO in before the end of the year, so Saudi Aramco will most likely go public in early 2020. Although the Saudi Crown Prince, Mohammad bin Salman (MbS), and a number fo others within the company previously stated it will go public by 2021, the latest news on Aramco’s IPO heavily implies heavily that the 2020 date far more realistic.  

Unconfirmed sources have also claimed that the Saudi government have plans to issue the stock in 2020.

Why is Saudi Aramco going public?

Saudi Aramco is going public to raise money for the Saudi Arabian Kingdom. Being owned by the state is a crucial factor in the IPO going ahead, as the nation looks to improve its military defence forces. Another factor for raising the money from the IPO is a personal one for MbS, who has unveiled plans for a futuristic ‘megacity’ that will cost around $500 billion.

How much money is Saudi Aramco going to raise from its IPO?

Valuations of the firm differ from source to source. Internal analysts are hoping for $100 billion from its IPO, whereas independent sources claim the company is worth as much as half of that figure. 

Is the Saudi Aramco IPO going to be the biggest IPO in history?

All signs point towards Saudi Aramco’s IPO to be the biggest in history. The current record-holder is Alibaba, which raised $25 billion in 2014.

However, it’s not the world’s most profitable company just off the back of a few rich Saudi princes, so it should be noted that Aramco is one of the stand-alone most successful businesses that has ever been created. This alone suggests it has the capabilities of cementing its place as having the biggest IPO ever, and its (albeit ambitious) target valuation of $2 trillion implies Aramco’s internally confident of smashing Alibaba’s offering as well.  

Where will Saudi Aramco be listed and what will its ticker symbol be?

With its bonds already listed on the London Stock Exchange, it’s a fair shout that its regular stocks will follow the lead and be listed there too. This is yet to be confirmed, though, so there’s also a strong possibility that it could be listed on the NYSE.

As for the ticker symbol, this had not yet been disclosed.

Should I trade Saudi Aramco?

Trading offers a lot of benefits over investing. Perhaps the most significant one is the fact that you will be able to short Aramco, which means your position will be profitable if the company’s share price falls from the time you opened the trade and will be unprofitable should the share price rise. When investing, you can only make money if the price rises.

As for Aramco itself, it certainly is an exciting opportunity to trade. With the future ambition of the Saudi Kingdom, Aramco could be a pivotal financial driver to help fund future projects such as the future city of Neom. Either way, Aramco will still be very ‘tied in’ with the actions of Saudi Arabia’s leadership.


How should I trade Saudi Aramco?

Once public, you’ll be able to trade Aramco with ETX Capital. However, you’ll have to decide whether to trade it long (hoping for its share price to rise) or short (hoping for its share price to fall). Here are some advantages and disadvantages of trading Aramco long.

Advantages of trading Saudi Aramco long
 Disadvantages of trading Saudi Aramco long
 

As one of the largest companies on the planet, the coverage and exposure it gets is huge. Therefore, at the click of a button you’ll have access to hundreds on different sources all reporting Saudi Aramco’s every move. 

As the most profitable company in the world, expectation will be high. Trading is based on investor sentiment, so high expectations could hinder and bullish positions – e.g. if Aramco reports strong profit, it’s expected but any negative will be intensified.

Being owned by the Saudi Arabian government means the firm is certainly not short of funds, even without its healthy profits.

The Saudi government may use the firm as a money bank to fund future investments.

 

Given the sector it’s in and the oil reserves the company has, its business model is very simple and not too risky. It involves sourcing the oil, and distributing it, there’s no risky strategy involved.

With Aramco currently performing well, some analysts argue that it might be at its peak. Therefore, in trading it long, there’s all the potential for huge losses and perhaps not much scope for profit. 

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