A historic IPO announcement as the Saudi government has confirmed it will sell a 5% stake in Saudi Aramco. The Saudi Arabian Oil Co as it is also known as is the largest energy company in the world. It has yet to be determined where the IPO is to be listed. The NYSE or London Stock Exchange would be the most likely choices for such a broad offering.
The company holds a fascinating and at times mysterious history. Saudi Aramco was founded back in 1933 and was partly a way for US oil companies like Standard Oil and Texaco to explore Saudi Energy reserves. In 1950 the Saudi government won the right to 50% of the profits of the company. When the United States decided to back Israel in the Yom Kippur war, the Saudi government had enough and nationalized another 25% of the company. By 1980 the Saudi government had complete control of the company.
Why look for an IPO now? The Saudi government may be hurting far worse than most were led to believe. Their budget deficit climbed by 15% of GDP in the past year. The Saudi’s were forced to raise the price of fuel by 60% domestically.
There are many that question the authenticity or accuracy of the valuation. Saudi Aramco just like the Saudi government is highly secretive and has not disclosed much information on the company’s revenues. The best estimates are from daily oil production figures as well what the company holds in reserves.
The IPO process will no doubt shed a great deal of more light on Saudi Aramco. Listing on any significant exchange requires far more detailed financial reporting that the company has been accustom to in the past.
Only time will tell if as the new Saudi Oil minister has indicated that the goal of this IPO is getting the Saudi economy back on track and to rid the Saudi addiction to oil.