Saudi Aramco crosses $2 trn valuation, becomes most valuable listed company

Shares in Saudi Aramco gained on the second day of trading on Thursday, propelling the oil and gas company to a more than USD 2 trillion valuation, where it holds the title of the world's most valuable listed company.

Shares jumped in trading to reach up to 38.60 Saudi riyals, or USD 10.29 before noon, three hours before trading closes.

Aramco has sold a 1.5 per cent share to mostly Saudi investors and local Saudi and Gulf-based funds.

With gains made from just two days of trading, Aramco sits comfortably ahead of the world's largest companies, including Apple, the second largest company in the world valued at USD 1.19 trillion.

Crown Prince Mohammed bin Salman is the architect of the effort to list Aramco, touting it as a way to raise capital for the kingdom's sovereign wealth fund, which would then develop new cities and lucrative projects across the country that create jobs for young Saudis.

He had sought a USD 2 trillion valuation for Aramco when he first announced in 2015 plans to sell a sliver of the state-owned company.

International investors, however, thought the price was too high, given the relatively lower price of oil, climate change concerns and geopolitical risks associated with Aramco.

The company's main crude oil processing facility and another site were targeted by missiles and drones in September, knocking out more than half of Saudi production for some time. The kingdom and the US have blamed the attack on rival Iran, which denies involvement.

In the lead-up to the flotation, there had been a strong push for Saudis, including princes and businessmen, to contribute to what's seen locally as a moment of national pride, and even duty. Gulf-based funds from allied countries also contributed to the IPO, though it has largely been propelled by Saudi capital.

At a ceremony Wednesday for the start of trading, Aramco Chairman Yasir Al-Rumayyan, described the sale as "a proud and historic moment for Saudi Aramco and our majority shareholder, the kingdom.

Cost of India refinery project with Aramco, ADNOC estimated at $70 billion

The cost of a giant oil and petrochemicals refinery project to be built jointly by Saudi Aramco and Abu Dhabi National Oil Co. (ADNOC) in India is expected to reach $70 billion, WAM news agency reported on Wednesday.

A joint economic council between the United Arab Emirates and Saudi Arabia reviewed the planned plant on Wednesday at a meeting on the sidelines of Saudi Crown Prince's visit to his Gulf ally.

"The initial cost is estimated at $70 billion," a statement said.

The 1.2 million barrels-per-day (bpd) coastal refinery in the western state of Maharashtra is expected to be built at Roha in the Raigad district, about 100 km (60 miles) south of Mumbai, sources told Reuters in August.

In September, India's oil minister said the refinery would cost more than the originally planned $45 billion.

Aramco's offer of $75 bn dividends can stretch finances during oil slump

In Saudi Aramco’s initial public offering, one selling point is the idea that rock-bottom drilling costs will allow the world’s largest producer to weather the next oil slump better than majors like Exxon Mobil Corp. and Royal Dutch Shell Plc.

It may not be that simple. When the banks working on the IPO put the company’s balance sheet through the stress of low oil prices and reduced production, Aramco struggled.

To lure investors, Aramco has promised a bumper dividend payment of at least $75 billion a year. That could make yields competitive with the likes of Exxon and Shell, but also threatens to stretch the world’s largest oil producer if prices fall.

JP Morgan Chase & Co. told prospective investors in a research report that under an “acid test” of crude at $40 a barrel and production of 9 million barrels a day, Aramco would only remain within its self-imposed borrowing target by cutting its dividend by 30% and slashing spending dramatically.

Aramco and JPMorgan declined to comment.

In the last oil slump, when Brent crude plunged to a low as $27.10 a barrel in January 2016, oil prices only recovered after Saudi Arabia led a group of OPEC and non-OPEC countries in cutting production. Lower output from the Organization of Petroleum Exporting Countries means less production and revenue for Aramco, which pumps all of the kingdom’s oil.

JPMorgan’s scenario is hypothetical and may not resemble real oil prices and production levels anytime soon, but it shows that Aramco would suffer as other companies do when oil prices drop. Aramco currently produces close to 10 million barrels a day, and Brent crude is trading above $60 a barrel.

Aramco, which currently carries no debt, has a self imposed a gearing ratio -- a measure of indebtedness -- of 5% to 15%, giving it significant room to borrow. Even then, it will be significantly lower than publicly traded oil majors, which traditionally target a ratio of 20% to 30%.

Aramco has promised to pay shareholders at least $75 billion in dividends next year, up from $58 billion in 2018.

It has given itself a potential get-out clause if the oil market becomes really ugly, though. Aramco has said that it would guarantee dividends to minority shareholders at the expense of payments to the government.

While that would hit government finances already suffering from lower oil-related tax revenue, it does provide potential room for maneuver.

In pre-IPO research sent to investors, banks highlighted that despite the enormous cash flows generated by Aramco, the company would need to take on debt to cover spending plans, acquisitions and dividends at $60 a barrel.

For example, Goldman Sachs Group Inc., in an 80-page report, told investors that Aramco will face a cash deficit of $11 billion in 2019, rising to $27 billion in 2020. The company will take on debt to bridge the gap. In 2021, the deficit drops to about $8 billion, Goldman said. UBS group AG, in a 156-page report, also warned of cash deficits, although smaller.

To be sure, other oil majors would probably struggle even more than Aramco if oil prices drop to $40 a barrel. But they benefit however from the ability to determine their own production. In the case of Aramco, it’s the Saudi oil ministry, in coordination with OPEC, who decides how much the company pumps.

Saudi crown prince approves Aramco IPO, announcement likely Sunday

Saudi Crown Prince Mohammed bin Salman finally gave the go-ahead for the initial public offering of Aramco, deciding there’s enough support from local investors for what’s likely to be a record share sale.

The crown prince made the decision at a meeting he chaired on Friday and an official announcement is likely as soon as Sunday, according to people familiar with the matter, who asked not to be named before an official statement.

The partial privatization will be a deal like few others and the biggest change to Saudi oil industry since the company was nationalized in the 1970s. Aramco, which pumps 10% of the world’s oil from giant fields beneath the kingdom’s barren deserts, is the most profitable company globally and the backbone of the kingdom’s economic and social stability.

First suggested by Prince Mohammed in 2016, the IPO was delayed several times as international investors balked at the $2 trillion valuation he placed on the company. An earlier plan to kick off the share sale in mid-October was shelved after bankers received lukewarm interest from money managers, and the deal will likely rely heavily on Saudi money. It’s not clear if the prince is willing to accept a lower valuation.

The valuation will probably be closer to $1.5 trillion, Reuters reported, citing people familiar with the matter. Aramco officials are meeting with global institutional investors and have approached governments in the Gulf and Asia, including China, the report said.

The sale is key to Prince Mohammed’s Vision 2030 plan to overhaul the Saudi economy and end the kingdom’s reliance on oil exports. The proceeds from the IPO will boost the firepower of the OPEC nation’s sovereign wealth fund.

Grabbing a role in the deal has been one of the most hotly contested mandates for global banks. More than 20 are working on the deal, with the top roles going to firms including Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co.

But the path to today’s decision hasn’t been smooth. After investors pushed back on the Prince Mohammed’s $2 trillion valuation, the original plan to list Aramco in either New York or London was dropped in favor of a Riyadh-only flotation.

To get the deal done, Aramco’s bankers will need hefty contributions from the kingdom’s wealthiest families, many of whom have already been targeted in the 2017’s corruption crackdown that saw scores of rich Saudis detained in Riyadh’s Ritz-Carlton Hotel. Authorities said they raised over $100 billion in settlements from people accused of graft.

Local asset managers, including those looking after government funds, have also been asked to make significant contributions, while domestic banks have been told to lend generously so retail investors can buy Aramco shares, according to people familiar with the situation.

Aramco must also contend with the strengthening global movement against climate change that’s targeted the world’s largest oil and gas companies. Many fund managers are concerned the shift away from the internal combustion engine -- a technology that drove a century of steadily rising demand -- means consumption of oil will peak in the next two decades.

Aramco could be listed before the end of the year, in which case the world’s most valuable company will no longer be traded in the U.S. but on the Saudi bourse. The exchange lifted restrictions on foreign investors four years ago.

In a bid to make the stock more attractive, Aramco plans to pay $75 billion in dividends next year. That would give investors a yield of 3.75% if the company achieves its ambition of a $2 trillion valuation. That’s a decent payout in a low-interest-rate world, but it’s a lower dividend yield than at other big oil firms.

Investors who buy into the IPO have been guaranteed that the dividend won’t fall until after 2024, regardless of what happens to oil prices. Instead, Aramco will cut back on payouts to the government if it has to reduce the total dividend to less than $75 billion.

Ready for two-stage IPO but timing is government decision: Aramco

Saudi energy giant Aramco is ready for a two-stage IPO but the timing is up to the government, its chief executive said Tuesday, flagging a possible foreign listing as part of the giant offering.

Aramco is "ready" for the IPO but the timing is a "government decision", Amin Nasser told reporters on the sidelines of the World Energy Congress. "One of the primary listings is going to be local but we are also ready for listing outside.

Saudi Arabia's Crown Prince expects the Aramco IPO as early as 2020-21

Saudi Arabia is committed to selling shares in Saudi Aramco as soon as next year, Crown Prince Mohammed Bin Salman said in an interview with the Saudi-owned Ahsarq Al Awsat newspaper.

“We are committed to the Aramco IPO, given the proper circumstances and the right time, and as I said before I expect it will be between 2020 and early 2021,” the crown prince told the newspaper.

In the wide-ranging interview with the Saudi-owned newspaper, the crown prince also commented on recent attacks on oil tankers near the Strait of Hormuz and Saudi Arabia’s 2030 development goals. Here are the highlights from the interview:

Attacks against tankers, oil facilities and the Abha airport affirm Saudi Arabia’s call for the global community to take a firm stance against Iran.

“The kingdom does not seek war in the region, but will not hesitate in dealing with any threats towards our people, sovereignty, unity and vital interests.”

Iran didn’t respect the Japanese prime minister’s efforts, and attacked the tankers while he was still a guest in Tehran, the crown prince said.

Saudi Arabia holds its relationship with the US in the highest regard because it is a key factor in the region’s security and stability, and that bond won’t be affected by media campaigns.

Saudi Arabia supported all efforts to reach a political solution in Yemen, but the Houthis would rather put Iran’s interests before Yemen and its people.

The Kingdom won’t tolerate the presence of militias on its borders.

Saudi Arabia is committed to supporting the Sudan and its people.

The Kingdom has begun implementing its 2030 vision in different aspects, and is already seeing results on the ground.