Eight Hidden Details About Saudi Aramco’s IPO

Investors will soon have the opportunity to buy into the ultimate oil company – Saudi Aramco.

Saudi Arabia recently announced its National Transformation Plan, called Vision 2030. It lays out several plans for the country’s economy. Among these is the upcoming IPO of a portion (small) of Aramco. Hidden in the news stories, interviews, and documents are some important new details for investors.

1) Who will be able to invest?

Shares in Aramco will be listed on the Saudi stock exchange, Tadawul, but funds will also be established to facilitate investment from foreign individuals and entities. It appears that the Saudis are encouraging foreign investment to increase liquidity.

2) What will be offered in the IPO?

No more than 5% of Aramco will likely be offered, with the exact percentage to be determined by how much cash the Saudis are looking to raise at the time of the IPO. It seems that shares in Aramco itself will be offered, but Aramco is to be converted into a holding company for all of Saudi Arabia’s energy assets. This holding company will consist of Saudi Arabia’s assets in oil reserves, refineries, petrochemical plants, alternative energy initiatives, transportation and distribution mechanisms, and research and development operations.

3) Will there be big dividends?

Right now the Kingdom funds its government largely through Aramco’s profits – essentially taking regular and large dividends. Saudi Arabia will need to continue to do this with the portion of the company it continues to own. It is possible that the class of shares the Kingdom will offer to outsiders will not include such high dividends. However, if it does offer dividends similar to the type enjoyed by the Kingdom, investors should look for the value of the IPO to be unbelievably high.

4) What will Aramco do with the money raised from the IPO?

Typically, money raised in an IPO is mostly reinvested in the company. However, Saudi Arabia says it intends to use the cash to fund, in part, its new Public Investment Fund (PIF). The relationship between the PIF and Aramco has not been made clear. If, in fact, IPO money is taken out of Aramco and put into a different investment vehicle, investors may become concerned about where their investment is going. On the other hand, perhaps this unconventional practice should not cause concern, because the IPO will account for such a small part of Aramco.

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