Aramco - A Report Brought to You by Q8 Trade
Who is Aramco?
Aramco is a Saudi national company operating in the fields of oil, natural gas, petrochemicals and related works of exploration, production, refining, distribution, shipping and marketing. It is a globally integrated company that was nationalized in 1988 and is headquartered in Dhahran, Saudi Arabia.
Currently, it is the largest company in the world in terms of market capitalization at $781 billion in 2006 and $7 trillion in 2010.
Here’s a fact:
Aramco’s market capitalization in 2015 was about $10 trillion and the company’s total profit was $111 billion in 2018 which is equivalent to the total combined profits of Apple, Google and ExxonMobil.
Saudi Aramco reported record a net profit in the first half of 2019 compared to the same period in 2018 with a net income of $46.9 billion compared to $53.0 billion while EBITDA was at $92.5 billion. Capital expenditure was at $14.5 billion compared to $16.5 billion.
Profit on crude oil production in Aramco was 20% until November 2019 as the company entered into an agreement with the government to reduce the rate of revenue on crude oil production from 20% to 15% effective January 1, 2020.
In 2016, Chairman of the Supreme Council of the Company Prince Mohammed bin Salman announced the possibility of offering part of the company’s shares to the public, a new step within the Crown Prince’s plan to diversify the economy of the Kingdom away from dependence on oil revenues and in 2018, news circulated that the IPO was canceled.
In 2019, the World Economic Forum listed Aramco’s gas plant as a “lighthouse” that includes the world’s leading manufacturing facilities in the implementation of the Fourth Industrial Revolution.
In 2019, Aramco selected 9 banks to manage its initial public offering, which starts with a 1 percent local listing in a year: Goldman Sachs, JPMorgan, Morgan Stanley, National Commercial Bank of Saudi Arabia, Bank of America, Merrill Lynch, Credit Suisse, Citibank and HSBC.
And the plot thickens…
The first steps to prepare Aramco for IPO came in April 2019 when the company sold international bonds for the first time in its history in addition to commissioning an independent review of the Kingdom’s oil reserves, publishing its profits during the first half of 2019, and then the decision to appoint Yasser Othman Al-Rumayyan, the governor of the Public Investment Fund.
Former Saudi Aramco chairman and former Saudi Aramco chairman Khaled Al-Falih said that it was an important step to prepare the company for the IPO but the most important step is when sources announced the company’s use of 9 global investment banks. There are two local companies which will manage the prospective IPO which means that the IPO may be available by the end of the year.
And then some good news:
In November 2019, Aramco’s chairman announced the approval of the Saudi Capital Market Authority to list the stock on the Kingdom’s stock exchange. Analyst reports will be monitored to determine the percentage and price range of the company’s stock within ten days from the date of the announcement and then the stock will be put on the Saudi stock market.
The approval is valid for 6 months from the date of the CMA’s decision. This period includes the offering and listing of the company’s shares. The offering also allows Saudi nationals subscribed to the listing to obtain free shares within specified controls.
How is Aramco’s stock price determined?
The price range represents the minimum value and the maximum price per share within the IPO. The price range should be announced during the next period before the offering but the share price will not exceed the specified range at the end of the subscription period.
The final price of the share will be determined after the expiry of the subscription order period. The offering shares will be allocated in accordance with the instructions of the company, financial advisors and underwriting managers.
But that’s just part of the story…
If the IPO price is set below the upper limit of the IPO price range on which the IPO was subscribed, the individual subscriber will have the option to either use the excess to allocate additional shares, if any, or to refund the difference between the IPO price and the IPO price.
What are the limited categories offered in Saudi Aramco?
When the Capital Market Authority approves the application for registration and offering of the company’s shares for public subscription, the final offering price (IPO subscription price for all subscribers) will be determined at the end of the period of the order book building.
The company has confirmed its commitment to provide sustainable and growing dividends to its shareholders, despite the volatility of crude oil prices. Any potential private profits.
The company explained that if the company’s board of directors decided to distribute quarterly cash dividends in the period from fiscal year 2020 to fiscal year 2024 and these profits were less than $0.09375 per share (considering that the capital consists of 200,000,000,000 shares), the government will waive Its right to receive a portion of the dividends payable to its shares to the extent equivalent to the amount necessary to enable the company to pay the minimum interim dividend to non-government shareholders after which the remaining amount of dividends available for distribution will be paid to the government.
Aramco noted that the offering is limited to only two categories of investors:
- Category I (Subscribed Institutions): This category includes the categories that are entitled to participate in the process of building the order book.
- Category II (Individual Investors): This segment includes natural Saudi individuals, including divorced Saudi women or widows with minor children of a non-Saudi spouse – where they are entitled to subscribe in their own name or the names of their minor children in their favor, provided they provide proof that they are divorced, or a widow and proof of maternity for minor children – and any non-Saudi natural person residing in the Kingdom and any Gulf national who in all cases has a bank account with one of the recipients.
What factors may affect Aramco’s stock price?
1. Low oil prices. Oil prices significantly affect the performance of shares of companies especially subsidiaries of the oil sector and in the current period demand for crude oil is declining due to some factors affecting the market such as attacks on facilities belonging to Aramco. This past September, as well as some poor global data and trade war between the world’s two largest economies, the United States and China, have greatly affected oil prices as well as US sanctions on Iranian and Venezuelan oil.
2. Climate change crisis and fears of escalation. The climate change crisis is one of the important things that affect crude prices and the volume of global demand for it, especially after the US announced its withdrawal from this group during the past few days.
3. Geopolitical risks in the region. Among the geopolitical risks that have occurred in the Middle East in the past few months are Iran’s attacks on crude oil tankers at sea which have certainly led to a decline in demand for crude oil.
Here’s one good example:
Aramco reported a net profit of $68.2 billion in the first nine months of 2019 before the attacks began. According to these indicators, net profit appears to be down 7% when compared to the $83.3 billion earned by Aramco in the same period in 2018.
The attacks on Aramco’s facilities on September 14th also affected the company’s performance and production. Prince Abdulaziz bin Salman Al Saud revealed that the attack resulted in several explosions. An estimated 5.7 million barrels of crude oil supplies or about 50 percent of the company’s production were halted according to preliminary estimates.
The Kingdom compensated for this drop through inventories, leaving the market and customers unaffected by the terrorist attacks.
The sharp decline in Aramco’s production affected the price of oil in the world market which led to its prices to rise to 20% levels which are reminiscent of the previous highs during the Gulf War.
Why Aramco’s IPO is not just one investment opportunity but several?
To make a point:
Aramco’s IPO is an excellent local investment opportunity.
It offers incentives to Saudi investors where each investor receives a free share for every 10 shares he holds provided that it is held for 180 days from the date of listing. Aramco also offered few exemptions to foreign investors to facilitate their participation in the IPO.
No doubt about it…
The offering offers several investment opportunities including those who do not have the minimum amount to buy Aramco shares or those who are interested in a short-term investment opportunity. This makes it a great opportunity to trade!
And we don’t stop there!
Another opportunity is to trade oil commodity contracts which are the basis of the subscribed company, as a subscription of this magnitude will have an impact on the price of oil which currently exists at low levels and this means that any small volatility will create an excellent opportunity to trade.