SAUDI'S IPO PLAN
Saudi Arabian Oil Co. confirmed it's considering an initial public offering, which could see the crude producer leapfrog Apple Inc. as the world's biggest listed company.
The company, known as Aramco, is studying whether to list "an appropriate percentage" of shares of the parent or a bundle of "downstream" units, according to an e-mailed statement Friday. The findings of the review will be presented to the board of directors, which will make recommendations to the company's Supreme Council, Aramco said.
Deputy Crown Prince Mohammed bin Salman said in an interview with The Economist published Thursday that the kingdom was considering an Aramco IPO as part of a broader package of economic reforms, comparing his plans to Margaret Thatcher's shakeup of the British economy in the 1980s. The company controls about 10 times the oil reserves held by Exxon Mobil Corp. and could be worth more than $2.5 trillion, according Danilo Onorino, portfolio manager at Dogma Capital SA, a family office in Lugano, Swtizerland.
The IPO proposal is consistent with the broader direction of economic reform in the kingdom, including state asset sales and market deregulation, Aramco said. Bringing in investors would also strengthen the company's focus on long-term growth and the prudent management of its reserves, according to the statement.
An IPO could make Aramco the world's most valuable company, with a capitalization at least double that of Apple's $535 billion, according to Jason Tuvey at research firm Capital Economics. Opening it up to investors would be the most dramatic change in the kingdom's economic policy since it started nationalization in the 1970s. The company's investment decisions have the potential to move crude prices and affect economies around the world.
The Economist said on Thursday about 5 percent of Aramco could be offered initially in Riyadh and more shares could be sold later, although the kingdom would retain control. Even a 5 percent share would be very large for the Saudi bourse to absorb while a listing on a major international market would come with a lot of additional reporting requirements, said Richard Mallinson, an analyst at Energy Aspects Ltd.
"They're going to be looking at what would be the strings that would be attached to a listing in terms of reporting and any other changes in the way that Saudi Aramco operates," Mallinson said by phone from London. "They could open up more of the downstream ventures. That would be a much less dramatic step."
Aramco floated a subsidiary called Rabigh Refining and Petrochemical Co. in the local stock market in 2008. The refinery, which processes 400,000 barrels a day, has a market capitalization of $2.3 billion.
While Saudi Arabia earned $285 billion from petroleum exports in 2014, the slump in prices has squeezed revenue for oil producers. The price of crude sold by OPEC members slid below $30 a barrel this week to the lowest level in 12 years as turmoil in Chinese markets deepened a global commodities rout. The group's members lost about $500 billion in revenue last year because of the slump, according to the International Energy Agency.
Aramco pumps all of Saudi Arabia's crude oil, with production at 10.25 million barrels a day in December. Among listed companies, Russia's OAO Rosneft produces more than 5 million barrels a day while Exxon pumps out about 4 million barrels.
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