Mega-business, the Arab Aramco oil company goes to the stock market

The stock market could have a good year, just as good as the one that just closed. That’s why some of the world’s leading technology companies line up to enter this dynamic market in the coming months. Many have plans to start trading their titles, from online music giant Spotify to the rental platform Airbnb, and the Chinese smartphone manufacturer Xiaomi.

However, the most anticipated business in the stock market is the IPO of Saudi Aramco, the Saudi state oil company. The expectation is great: Aramco could break all the records with the sale of 5 percent of its shares, since it expects to obtain around $100 billion. This operation would become the largest initial public offering (IPO) in history, much higher than in 2014 by Alibaba, the Chinese e-commerce giant founded by Jack Ma, which reached a record $25 billion.

To understand the size of the company, is enough to take into account that Saudi Aramco owns almost 20 percent of the world’s oil reserves and has the capacity to produce 12.5 million barrels per day, something like 15 times what a country extracts, like Colombia.

If these shares end up placed by the value estimated by the Saudi authorities, Aramco would have a stock market value of 2 trillion dollars, the largest market capitalization in the world, above technological giants such as Apple ($896 billion), Amazon ($628 billion), Facebook ($520 billion) and Google ($467 billion).

Media outlets such as The Economist have questioned this expected recovery, as they claim that this giant is worth no more than $ 1.1 trillion. But the conditions of the stock market and the increase registered in recent months by the international price of oil make foresee that Aramco will become the largest company in the world listed on the stock exchange.

The debut of the world’s largest oil exporter has generated such an expectation that major trading centers such as New York, London, Hong Kong, Singapore, Tokyo and Toronto compete to carry out this operation, scheduled for the second half of 2018. However, it is not ruled out that part of it is done at a national level or that it’s sold to a strategic investor.

There is so much interest in the operation that even the British prime minister, Theresa May, and the president of the United States, Donald Trump, have promoted their stock exchanges of London and New York. In the same way, large banks, and international financial advisers such as Goldman Sachs, Citigroup, HSBC, J.P. Morgan and Morgan Stanley are fighting to advise this mega-operation.

The Saudi government will destine the billionaire resources obtained by this transaction to improve its public finances, as well as to execute the ambitious economic restructuring plan promoted by Prince Mohamed bin Salmán, 31 years old, heir to the Saudi throne. The plan, called Vision 2030, seeks to reduce oil dependence, which today represents 87 percent of government revenues, and bet on other sectors such as new technologies, renewable energy, mining, and tourism.

Analysts see an opportunity to invest in a country that’s laying low on the radar of big investors, but around which more than 1,500 million Sunni Muslims gravitate. However, some think it would be a risky investment, because the social and economic reforms implemented by the Saudi prince are not enough, and that is still a country governed by a royal family with great geopolitical tensions. Investing in Saudi Aramco will be betting on the ability of the main oil power to deal with a changing environment.

On the other hand, the public offer by Aramco gives Saudi Arabia more reasons to maintain and comply with the agreement to cut production quotas agreed by the OPEC countries, because high oil prices favor the valuation of what will be the great debut of the year.

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