Saudi Aramco released the long-awaited prospectus for its initial public offering on Saturday, with the kingdom’s state oil company saying it would offer up to 0.5 per cent of shares for sale to retail investors while disclosing few other details.
The offering is tipped to be the biggest ever. But Saudi Aramco did not reveal the number of shares on offer, the total percentage of the company to be sold, a price range or a date for the listing.
The prospectus marks the furthest the kingdom has gone in its endeavour to list shares in the country’s biggest revenue earner, almost four years after Crown Prince Mohammed bin Salman first disclosed his ambition for a flotation.
After repeated delays, largely stemming from questions over the company’s ability to secure the $2tn valuation target sought by Prince Mohammed, it is set for a stock market listing as early as next month.
“An initial public offering in the Kingdom of this kind and size is unprecedented,” Saudi Aramco said.
If all goes to plan, Saudi Aramco will have shareholders aside from the government for the first time in nearly four decades.
People familiar with the process have said the kingdom sought to sell 1 to 3 per cent of the company, raising $20bn-$60bn. Other people say Prince Mohammed has lowered his valuation expectations, with investors believing the company is worth between $1.2-1.5tn.
The total number of shares in the company amounts to 200bn. While up to 0.5 per cent — or 1bn shares — will be offered to retail investors, Saudi Aramco did not reveal the proportion to be sold to institutions.
Saudi Aramco had previously said crucial details for the listing on the domestic Tadawul exchange would be revealed after the book building period. In the prospectus it said this will take place between November 17 and December 4. The final price for the IPO is expected to be announced a day later.
The government will not list new shares under a six-month statutory lock-up period, the prospectus said. It will also enter a contractual lock-up period of 12 months, during which it will not be able to sell any more shares except to foreign governments and overseas state-related strategic investors.
After the statutory lock-up elapses, the government would be able to sell more shares with the agreement of a third of the IPO’s coordinating banks.
Saudi Aramco has already made a series of moves to entice investors — from changing royalty payments and tax rates to announcing a mega minimum dividend of $75bn a year — in order to secure a bumper valuation for the company.
Despite dangling the prospect of significantly high payouts, the company on Saturday warned that it may change its dividend policy without prior notice to its minority shareholders.
Among other risk factors, the oil company — the world’s largest producer — said it was vulnerable to fluctuations in commodity prices, reliance on Asian consumers, rival producers such as shale oil drillers, political and social unrest and terrorism. Attacks on key energy facilities temporarily halved the kingdom’s oil production in September.
Saudi Aramco is listing shares in the company as its international rivals face growing investor pressure to take responsibility for their role in enabling global warming. “Climate change concerns and impacts could reduce global demand for hydrocarbons and hydrocarbon-based products and could cause the Company to incur costs or invest additional capital,” it said.
Research commissioned by the company forecasts that oil demand will continue to grow until at least 2030, albeit at a slower rate than the 2000 to 2018 period, and then level off from 2035. Even so, the kingdom has long maintained it will be the last producer standing because of its lowest cost barrels.
For much of this year Saudi Aramco produced 10m barrels a day, and has a maximum capacity of 12m b/d.
Saudi Aramco cited “significant litigation” it has been subject to in the US, including on antitrust and its membership of Opec. Until now it has been granted sovereign immunity, but it said there is “no assurance” it could succeed in the future.
Despite trying to untangle its operations and accounts from the state, Saudi Aramco said that the government will dictate production decisions and “may direct the Company to undertake projects or provide assistance for initiatives outside the Company’s core business”, which are inconsistent with commercial objectives.
Saudi Aramco said that it will be compensated for such work. But it will still pay up to $100m a year to fund “services and studies” for the energy ministry, underscoring its importance to the Saudi state.
The banks leading the IPO include Citigroup, Credit Suisse, Goldman Sachs, HSBC, JPMorgan, Bank of America, Morgan Stanley and two domestic banks in Saudi Arabia. Goldman Sachs has been selected as the “stabiliser” of the shares after trading. Saudi Aramco did not disclose fees for bankers.
The company revealed its financials and details about the kingdom’s oil reserves for the first time earlier this year when it issued its debut $12bn bond — inner workings that have for decades remained a closely guarded secret.
The company has exclusive access to crude oil and condensate reserves amounting to 261.5bn barrels as part of a 40 year concession. For 2018, it reported $111bn in net income, making it the most profitable company in the world, with very low debt levels.
The prospectus did not specify how the government will use the proceeds of the IPO. Prince Mohammed has previously said he would like to use this cash to plough into non-oil sectors to diversify the kingdom’s economy.
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