Saudi Arabia formally starts IPO of state-run oil firm.
Saudi Arabia formally began an initial public offering Sunday of a sliver of oil giant Saudi Aramco after years of delay, hoping international and local investors will pay billions of dollars for a stake in the kingdom's crown jewels.
However, economic worries, the trade war between China and the U.S. and increased crude oil production by the U.S. has depressed energy prices. A Sept. 14 attack on the heart of Saudi Aramco already spooked some investors, with one ratings company already downgrading the oil giant. Saudi Arabia's oil sits close to the surface in large pools, making it far cheaper to extract. Saudi Aramco also has proven liquid reserves of 226.8 billion barrels, the largest of any company in the world and"approximately five times larger" than those held by the five oil giants, according to the firm's IPO documents.
But the planned IPO saw years of delays over valuation concerns and where to list it abroad. Oil prices, once over $100 a barrel, crashed in 2014 to under $30 a barrel. Benchmark Brent crude now trades around $60 a barrel, pushed up by a production cut by OPEC countries like Saudi Arabia and those outside of the cartel like Russia. Those cuts have limited Saudi production, in turn pushing up its estimated government budget deficit for next year to nearly $50 billion.
Based on that, Saudi Arabia may choose to rely on local investors to push up the price of the stock, Raja said. Saudi Aramco has sought to assure investors, given the questions over its valuation and the potential hazards of future attacks or geopolitical risk. A presentation posted to Aramco's website last month announced the intent to offer a $75 billion dividend for investors in 2020. That's the payment per share that a corporation distributes to its stockholders as their return on the money they have invested in its stock.
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