Banks are competing for a role in Saudi Aramco’s scheduled IPO

The world's most profitable company is set to go public, and everyone wants in.

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Banks from around the world have been putting their proposals together in hopes of getting a role in Saudi Aramco’s planned initial public offering (IPO). This week, these banks brought forth their pitches to the table, explaining why they should be hired for what is said to be the world’s biggest IPO.

On Tuesday, several representatives of advisory firms landed in Saudi Aramco’s headquarters located in Dhahran in the kingdom’s Eastern Province. The global banks are currently competing for a role in the energy company’s much delayed public offering.

It’s been more than three years since Saudi Arabia announced its plans for a potential IPO of state-owned Aramco. Since then, the planned listing has been delayed multiple times, but it seems as though the plans may actually fall through very soon. According to sources who spoke to Bloomberg, the public offering is scheduled to take place as early as 2020.

Source: Bloomberg

In July, Saudi Aramco held initial talks with a number of investment banks to discuss their potential roles once it has finalized its merger with Saudi Basic Industries Corp (Sabic). Those talks have now materialized into actual proposals and pitches.

Last year, Aramco bought a $69 billion stake in the petrochemicals giant Sabic. The kingdom aims to raise a record $100 billion from selling a 5 percent stake in the state-owned oil giant, which would make it the biggest IPO in history.

Earlier this year, Saudi Aramco confirmed its status as the most profitable company after disclosing its financial data for the first-time ever. The state-run oil giant announced it made $111 billion in profit in 2018, beating the likes of American tech company Apple Inc., which made a profit of $59.4 billion during the same period. According to CNBC, Saudi’s national petroleum and natural gas company made more money than four corporate giants combined. These include J.P. Morgan Chase, Google-parent Alphabet, Facebook, and Exxon Mobil. Together, these companies made nearly $106 billion in 2018. However, this month, the company declared its profits have dropped 12 percent in the first half of its financial year, a consequence of weaker global oil prices, though that didn’t change Saudi Aramco’s position as the world’s most profitable company.

According to CNN Business, Saudi Aramco produces an average of 10 million barrels of crude oil per day. However, low oil prices led to a decrease in profits during the first six months of 2019.

The company’s relatively frequent disclosure of financial data comes after the much delayed public offering, which was first announced in 2016. It was scheduled to take place in 2018, then again in 2019. Now it’s been said the listing is scheduled for 2020-21.

Why is Saudi Aramco going public?

Low oil prices have hit the Saudi economy hard, forcing the kingdom to cut subsidies and strive to diversify its oil-reliant economy. A 2016 report suggested the kingdom will fall into an economic recession in 2017 for the first time since 1999. Although 2016 turned out better than experts had expected, the kingdom still ran a deficit, forcing it to dig deep into its massive foreign reserves.

An IPO, which is the first time the stock of a private company is offered to the public, was meant to be a step forward for the kingdom. Crown Prince Mohammed bin Salman’s ambitious Vision 2030 pushed for major economic reforms in the kingdom, and the announcement of the partial sale of Aramco was included in it.

As part of the wider plan, the kingdom announced 20 percent pay cuts for all ministers and 15 percent pay cuts for Shura Council members in 2016. Bonuses and other perks were also targeted by the reforms, and sales taxes have been introduced. More than two-thirds of Saudis work in the public sector, with the kingdom spending roughly 45 percent of its budget, or $128 billion, to pay their salaries in 2015. The kingdom also sold $17.5 billion in debt in 2016. This was the largest-ever bond sale from an emerging market. The sale was hailed as a major success for the world’s top oil exporter as it attracted investor interest totaling $67 billion, nearly four times the amount of the sale.

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