Over the weekend Saudi Arabia formally, and finally, announced the IPO for Saudi Aramco, the state-owned oil company that will have its domestic listing in December. Although the IPO was approved by the kingdom’s market regulator, the final details, such as percentage of the shares to be sold and the final offer price are still to be determined at the end of the book-building period. According to those in the know, the IPO prospectus would be released on the 9th November, pricing will start on the 17th November, and the final details are expected to be announced on the 4th December. The list of banks and advisers working on the IPO reads like a who’s who of all the major players in global markets.
Aramco is the world’s largest fully integrated oil and gas company, accounting for approximately 1 in every 8 barrels of crude produced globally between 2016 and 2018, and as such comes with equally large valuation, however maybe not as large as some might hope. Reports indicate that the valuation may vary by a staggering USD1tln. Prince Mohammed bin Salman, the Saudi Crown, has spoken of his belief that the company should be valued at USD2tn, however, Bank of America Merrill Lynch has ranged its valuation from between USD1.2tn to USD2.3tn. The long-awaited IPO is all part of Mohammed bin Salman’s plans to wean off the Middle Eastern from oil and invest and develop other more sustainable parts of the economy as well as invest in a diverse range of businesses across the globe.
To help boost appetite for the IPO, the government has announced that it slashed the income tax the company pays on domestic downstream business to 20% starting in 2020, down from the current rates of between 50% and 80%. Additionally, the government will also exempt a light oil called condensate that is typically separated out of natural gas from tax until 2033. These measures alone would have increased free cash flow by USD4.5bln in the first 6 months of this year in addition to the USD68bln of net income earned in the first nine months of 2019.