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Aramco IPO to boost transparency and efficiency

The increased transparency of Saudi Aramco after the public offer will attract higher foreign capital and further boost market confidence in Saudi Arabia, says a new report.

The report by Al Rajhi Capital, a leading financial services provider in the kingdom, looks at Saudi Aramco to see if the IPO of state-owned companies could lead to efficiency gains.

The study finds that following listing on the exchange, state-owned companies generally witness an improvement in productivity. “We also note that the Board has deep expertise with diverse backgrounds and industries,” it said.

The listing of state-owned oil producer Saudi Aramco, the world’s largest producer, is at the centre of the government’s diversification plan, Al Rajhi Capital noted.

Aramco has total reserves of ~311bn BOE (including 261bn barrels of oil). According to the OPEC monthly report, Saudi Arabia produced ~9.99 million barrels per day (MMbb/d) in March, accounting for more than 10 per cent of the global supply.

While the valuation of Saudi Aramco is still under study, some media reports indicate that the valuation could be significantly higher than Exxon’s enterprise value ($390 billion) and Petrochina ($291 billion). By selling ~5 per cent stake (likely by mid-2018), Saudi Aramco IPO could be the largest IPO ever (currently Alibaba holds that honour with an issue size of $21.8 billion).

The proceeds from the IPO will be used to invest in other sectors, in order to diversify the Kingdom’s sources of income away from oil. The government is looking to list the world’s largest oil producer in at least two exchanges, including the Tadawul. – TradeArabia News Service