Sector News

Saudi Aramco ready for record $2tn IPO after first-half results

August 15, 2019
Chemical Value Chain

Saudi Arabia’s state-owned oil group is ready to move ahead with a record $2tn (£1.7tn) market float after revealing profits of $46.9bn for the first half of this year.

Saudi Aramco’s profits for the six months ending in June were down from $53.2bn in the first half of last year owing to lower oil prices, but were still well ahead of the world’s six biggest listed oil companies combined.

Khalid al-Dabbagh, a senior executive at Aramco, said the results proved the world’s most profitable company was ready for an initial public offering whenever its shareholders agreed market conditions were “optimal”.

“We have delivered strong and unmatched financial performance despite lower oil prices and challenging market conditions,” he said.

He used Aramco’s first ever investor call to signal the company’s readiness to list on the international markets after resurrecting the plans earlier this summer.

Aramco had said earlier this year it would consider a market listing before 2021 once a planned merger with petrochemicals company Saudi Basic Industries Corp (Sabic) was finalised.

Al-Dabbagh said the inaugural call was an important step in its programme to “strengthen communications with investors”.

“The company is ready for the IPO,” he added. “The timing of the IPO itself, this is a shareholder issue. They will announce it depending on their perception of the optimal conditions.”

The executive declined to answer questions over the company’s spending plans or its future dividend policy, issues typically discussed by the executives of listed companies as part of normal investor relations.

Aramco is in high demand from investors, despite concerns over the Saudi state’s human rights record in the wake of the murder of journalist Jamal Khashoggi and the war in the Yemen, due to its vast reserves of oil which is one of the cheapest in the world to produce. In 2018 investors placed orders worth $100bn for $12bn of bonds.

Its latest results show that it produced 13.2m barrels of oil a day in the first half of the year, more than four times the rate of production from rivals such as ExxonMobil, which produced 3.9m a day over the same period.

Aramco plans to maintain its position as the world’s leading oil company, while growing its presence in gas and oil refining.

It laid out plans to take a 20% stake in the oil-to-chemicals business of India’s Reliance Industries at a value of $75bn including debt, which would be “one of the largest foreign investments ever made in India”.

“India is a large country with a large demand, and a growing demand [for energy],” Al-Dabbagh added.

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Saudi Arabia plans to modernise its economy by diversifying, moving away from a near-total reliance on oil revenues and opening the kingdom to international investment. The Aramco flotation is intended to raise funds for that modernising drive.

The previously secretive company lifted the lid on its financial performance for the first time ever at the start of April and ahead of its first bond raise on the international market.

The key test of investor appetite in Aramco attracted the highest level of demand in history.

Aramco made $111.1bn of profits in 2018, on revenues of $355.9bn. Meanwhile Apple, the world’s most profitable listed company, made net income of $50.6bn in 2018, while Shell made £$23.4bn.

By Jasper Jolly and Jillian Ambrose

Source: The Guardian

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