No End to Saudi’s Dividend: Saudi Aramco announces $75bn dividend ahead of IPO

October 22, 2019

3 min read

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What's going on here?

Saudi Aramco is proposing to offer a $75 billion annual dividend between 2020 and 2024 to entice investors as part of a wider strategy to secure a $2 trillion valuation for their Initial Public Offering (IPO).

What does this mean?

Saudi Aramco, the world’s largest oil exporter, and Saudi Arabian national petroleum and gas company is gearing up for its IPO. An IPO is the first time a company offers its shares to be bought by the public in order to raise capital. 

Drone attacks on Aramco oil plants earlier this year had many investors worried, but the Kingdom and the company are hoping that offering investors a $75 billion annual dividend (payments made to investors as a distribution of profits) will ease concerns. There is an aggressive push by the Kingdom to secure a $2 trillion valuation for the IPO, as part of the Kingdom’s Vision 2030 strategy to overhaul the Saudi economy and reduce its reliance on oil. The strategy purports to diversify the Saudi economy and address budget deficits from the 2014 oil price crash. Proceeds from the IPO will go towards the Saudi Public Investment Fund (PIF) to finance projects reducing the Saudi economy’s reliance on oil. This will allow the PIF to increase its investments both domestically and abroad

While present discussions may signal a smaller deal than anticipated, it could still turn out to be the biggest IPO on record. Analysts expect 1% and 2% of Saudi Aramco to be listed on Tadawul by the end of the year; which may be followed by an international listing in Tokyo later.

Why Should Law Firms Care?

The State oil giant has appointed White and Case as its legal adviser for the IPO. While shares will be primarily listed on the Riyadh Stock Exchange, known as Tadawal, Aramco will consider an international share sale as well. Going public via an IPO is a big move for a company so they will want to have the best investment banks and legal advisers as part of their team. 

There are many legal aspects to an IPO. If IPO preparation procedures are not complied with, shareholders may raise class actions against the company. Therefore, having specialised lawyers in this area is crucial to raising an IPO, and avoiding legal risk or liability. Companies need to have lawyers that have experience in conducting due diligence, verification processes (such as for prospectus’ and financial statements), and advising on ancillary documentation. 

The law firm will also be involved in advising the issuer and underwriters of the IPO. An IPO will usually require significant changes to be made to the company, with new legal and compliance obligations needing to be adhered to. Aramco has always maintained a secretive nature to its operations as the company has never had to disclose any of its financial statements and has only recently introduced independent auditors to the company. The more transparent the company, the easier it is to attain a higher IPO valuation. Lawyers will be involved in formalising and properly documenting all existing relationships and commercial dealings undertaken by the company. Other “housekeeping” matters such as reviewing the company’s constitutional documents will also be performed by lawyers. Lawyers will also have to ensure that the applicable securities law, rules of the stock exchange, and requirements for underwriters are complied with.

Report written by Robyn Ma

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