Saudi Aramco, formally known as the Saudi Arabian Oil Company, is
about to do something unprecedented in the petroleum and natural gas industry
due to its record breaking financial size. The national company is planning on
putting the country’s number one export and backbone of the Saudi Arabian
economy, in the hands of future public shareholders. This partial sale of the
company is part of a plan to boost the Saudi economy and reduce dependence on
oil. Aramco CEO Amin Nasser confirmed that the plan for the IPO release date is
on schedule.
The original
proposal of $26 a barrel created a huge hole in the country’s budget, forcing a
revision process of the deal. The Saudi government stated that the goal of
these revisions is to “improve efficiency and effectiveness of delivery across
institutions.” Oil prices in the Saudi kingdom have not yet recovered from
overhaul, leaving the economy in stagnation. The International Monetary Fund
projects GDP growth at a meek 0.1% this year. Economic stabilization is top
priority right now.
Saudi officials are
expecting the Aramco IPO value to be around $2 trillion. If the market follows
suit, selling only 5% of Aramco would raise a whopping $100 billion –
quadrupling the “Chinese Amazon” Alibaba’s public offering debut in 2014,
making it the largest to date.
It will be interesting to see what the final percentage of the firm is sold off and then how the share classes will be structured. The Saudi government's management of the firm will now be subject to scrutiny which the Saudi government does not normally face. Seeing how the Suadi governent manages this relationship will be interesting and a test to see if they can handle the shareholder scrutiny.
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