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Saudi Aramco IPO: Here are Three Burning Questions: Ellen R. Wald


By Ellen R. Wald

(Bloomberg Opinion) Saudi Aramco, the world’s largest oil company, will hold a public investor-relations call on Monday, even though the company is private and has only one shareholder. Many analysts expect that, for the first time, the Saudi Arabian behemoth will speak openly about its finances, including its earnings from the first half of 2019. But the call is also being seen as a potential staging for a long-delayed initial public offering that has recently received renewed vocal support from the royal family. Aramco is restarting the IPO process, and is in talks with banks over it, although shares of the company may not hit markets until 2021.There is no immediate need for equities investors to be interested in an Aramco investor-relations call, because the company’s shares are not available for purchase. If an IPO happens, it will be preceded by a roadshow and other opportunities for potential investors to learn more about the firm. At this point, an open call serves more to satisfy curiosity and perhaps help sell-side analysts begin to familiarize themselves with the giant firm that up until now no one had a reason to follow.

Aramco already shared a great deal of financial information in a prospectus it published before a sale of about $12 billion in bonds in April. The prospectus revealed information about the company that had long been kept secret: For example, that Aramco saw $111 billion in net profit in 2018 – more than twice as much as Apple Inc – and we were given some details about the company’s financial relationship with the absolute monarchy of Saudi Arabia.

Still, there is much more that investors need to know about Aramco before considering a stake in the company, because it is truly unique. Aramco’s operations are skewed toward upstream, meaning the exploration and production of crude oil, in contrast to the big international oil companies, which have shifted their focus toward refining and selling finished products. Aramco’s profits are incomparably higher than any other public of private firm; and its dependence on the good graces of an autocratic government is absolute. This last trait is one that the company’s investor relations team will need to explore openly to satisfy investors if and when an IPO does happen.

Even with the initial offering months or years away, there are big questions that Aramco should start answering for potential investors now. Here are three that analysts need answered on Monday:

1) Who has the ultimate decision-making power for Aramco?

According to company, the decision to go public, including when and where that happens, is up to “the shareholder.” The company spokespeople now say the shareholder is the government, but traditionally this is the term that Aramco employees used to describe the king. The current leadership, King Salman and Crown Prince Mohammed bin Salman, are not professionals in finance or energy, nor have they ever worked in business of any type in any significant way. Potential investors will want to know who is making decisions at the company – chief executive officer Amin Nasser and the board of directors, or the king and his son?

Until 2015, the oil professionals at Aramco exercised almost unfettered control over spending, investment and strategic vision. Under their management, Aramco grew into the multibillion-dollar, integrated powerhouse it is today. Recently, however, the Saudi royal family has interfered, notably pushing the company to purchase the petroleum-chemicals giant Saudi Basic Industries Corp from the Saudi Public Investment Fund, and announcing IPO plans with an astronomical $2 trillion expected valuation back in 2016. The crown prince now serves as chairman of the Supreme Aramco Council, which has oversight even above the board of directors, and which one executive told me serves as the “shareholder representative.”

2) On the occasion of an Aramco IPO, what limitations would be placed on the authority the Saudi monarchy has over the company?

In 2018, Aramco issued a corporate charter, in Arabic only, that essentially served as articles of incorporation and bylaws. The charter included several clauses to maintain the voting power of “the shareholder” if outsiders gained ownership of some shares. This protects the king and the government, but investors will want assurances that they and their interests are protected from the whims of a king or a prince whose interests may not align with those of the company.

3) When will Aramco cease providing expensive and resource-consuming services to the kingdom and royal family that are beyond its purview as an oil company, as stated in its January 2018 charter?

Since its early days as an American firm in the 1930s, Aramco has provided goods and services free of charge for the kingdom and royals. In the 1950s, Aramco wired the palace of the local governor, transported a gift elephant across the desert, and painted its planes with the Saudi flag before flying the king around Arabia. In recent years, Aramco provided cheap fuel for every aspect of the Saudi economy and society. Aramco even built the country’s premier soccer stadium.

According to the bond prospectus, Aramco still operates a research institute in Riyadh and a university north of Jeddah on behalf of the kingdom. But in 2018, the charter stated that Aramco’s business should be limited just to energy and petrochemicals. Potential investors need to know that Aramco will not be called on to provide goods and services to the kingdom at its own expense.

No one questions the value of Aramco with its unprecedented profit and its concession for Saudi oil and gas. Even if Aramco is a solid bet, is the monarchy?



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