Floating by on $2 Trillion: Saudi oil giant debuts on stock exchange

December 27, 2019

2 min read

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What's going on here?

The world’s most profitable company has gone public. Saudi Aramco listed its shares on the Saudi Stock Exchange in early December. 

What does this mean?

Aramco, Saudi Arabia’s national petroleum company, announced its decision to go public on 3 November 2019.  

An initial public offering (IPO) is when a company offers its shares to the public and raises capital from investors. A public offering forces companies to be more transparent, as they must disclose certain information, such as financial statements. An IPO can attract greater scrutiny to a company like Aramco, which is largely controlled by the Saudi monarchy.

The IPO is a watershed moment for Saudi Arabia and locals have been encouraged to invest in Aramco, which is hailed as a beacon of success for the region. Although originally geared towards foreign investment, concerns about ties to the Saudi state, as well as the potential valuation of the company, resulted in international interest being lower than expected. However, it is possible that further shares could be sold to foreign investors down the line, with the potential for a future international listing.

What's the big picture effect?

In 2018, Saudi Aramco made $111 billion in profit, compared to Apple’s $60 billion. This indicates the magnitude of an IPO and the economic impact, both for the region and investors.

The company’s listing is part of Crown Prince Mohammad Salman’s “Vision 2030,” which aims to achieve economic growth and sustainability for the Kingdom. Thus, the valuation and success of Aramco is important for the leader, in terms of political support and raising finance.  Furthermore, Saudi Arabia wishes to diversify and reduce its reliance on oil and gas, which currently make up around 70% of export earnings.

Investors will face price volatility if the demand for oil fluctuates, which could affect Aramco’s profitability. As the world moves away from oil and fuel based sources of energy, the listing could attract controversy and raise concerns for investors, who are now increasingly focused on the environmental, social and governmental impact of their decisions.  Social and political tensions have also impacted appetite for foreign investment into Aramco, most importantly, the country’s track record on human rights. On a larger scale, Saudi Aramco’s IPO can be seen as an indication of the shifting priorities of investors. 

At its most recent valuation, Aramco had a market value in excess of $2 trillion. It is estimated that the IPO earned the company $120 billion. To put things into perspective, Chinese retail behemoth Alibaba raised $25 billion in its 2014 IPO which previously held the record.

Report written by Laila Khan

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