Saudi Aramco prepares for $2T IPO in Tadawul on Dec. 11

After three years of delays and uncertainties, Saudi Arabia's crown jewel, Aramco, finally received regulatory approval on Sunday for its scheduled listing on Dec. 11 in the Saudi stock exchange Tadawul, potentially the world's biggest initial public offering (IPO).

Saudi Aramco's IPO prospectus, which will include financial statements, will be released on Nov. 10, while pricing Aramco shares will begin on Nov. 17, and the final share price for the IPO will be determined on Dec. 4. 

'Over the last three years, we were responsible for one in every eight barrels of crude oil produced globally,' Aramco President and CEO Amin H. Nasser said in a statement

'And our proved liquids reserves, at the end of 2018, were five-times larger than the combined proved liquid reserves of the Five Major IOCs [international oil companies],' he added.

As part of his 2030 Vision plan, Saudi Crown Prince Mohammed bin Salman aims to raise $100 billion through the public offering of 5% of Aramco shares, which then would make the company's market value at $2 trillion. 

Most analysts, however, find this target too optimistic, and estimate that Aramco's market valuation will be around $1.5 trillion on Dec. 11.

Yet, this estimate will still surpass the market capitalizations of American technology giants such as Apple, which stood at $1.14 trillion as of Monday, Microsoft at $1.1 trillion, Google's parent company Alphabet at $878 billion, and the biggest U.S. energy firm ExxonMobil at $294 billion. 

The Saudi crown jewel had an average of 13.2 million barrels per day (bpd) of oil equivalent in the first half of 2019, including 10 million bpd of crude oil with blended condensate. 

-Benefits

For Aramco's IPO, U.S.-based global investment banking giants such as JPMorgan, Goldman Sachs, Citigroup and Morgan Stanley have been hired to lead the process. 

Initially, only 1%-2% of Aramco shares plan to be offered on the Tadawul on Dec. 11, which also aims to attract foreign investors and capital to the Saudi stock exchange. 

While bin Salman urged wealthy locals to buy Aramco shares, regulatory benefits for shareholders are available to make the company's shares attractive. 

From Dec. 11, the first date of listing and trading, if Saudi retailers hold Aramco shares without selling for 180 days, they will receive one bonus share for every 10 shares they own up to a maximum of 100 bonus shares per person. 

The tax rate on Aramco's downstream business will be lowered to 20% from 50%, and the company will not pay royalties on condensate production for 10 years starting from 2023.

- Risks and worries

Aramco is expected to make other IPOs around the world to float 3%-4% of its shares in the stock exchanges of Tokyo, Hong Kong, London and New York in the next couple of years; however, there are concerns and some risks.

Due to Brexit, the London Stock Exchange is regarded as an uncertain market. In addition, U.S. Congress' decision in 2016 to allow American victims and their families to sue the government of Saudi Arabia for Sept. 11 attacks complicates the floating of shares on the New York Stock Exchange.

Investors are also worried that Saudi Aramco will not provide enough transparency on how much crude oil is left in the kingdom's reserves, and are skeptical over the close ties between the royal family and Aramco's executives. 

In addition, the drone attacks on two of Saudi Aramco facilities on Sept. 14 that caused a production cut of 5.7 million bpd, equal to around 6% of global oil output, have raised some eyebrows about the security of the company's infrastructure.

Saudi Arabia spent $68 billion for defense in 2018, ranking third in terms of expenditure after the U.S. and China. However, when taking into account the GDP of countries, the kingdom is rated as having the largest ratio of defense expenditure to GDP. 

If investors' demands are not in keeping with expectations for Aramco's IPO on Dec. 11, it could hurt further floating in foreign stock markets as well. 

Bin Salman wants the IPO to be successful for his Vision 2030 plan, as he aims to use earnings from the shares sale to invest in other sectors to wean off the Saudi economy's overdependence on oil exports and revenues.