Local listing to benefit Saudis
FINALLY, the Saudi company Aramco has decided to sell about 1.5 percent of its shares in the local Saudi stock market instead of risking them in the global stock market.
This is with the hope of obtaining better value for its shares for the time being and then later look for international investors. This was not its objective; it wanted to attract foreign monies and not domestic in order to contribute to eliminating the local deficits and generating cash for other projects as well as creating a new channel of revenue in lieu of oil. However, this is not likely to happen, as Saudi Aramco may have to wait for few years to register in the global stock market.
Aramco is the most profitable company in the world with daily production of more than ten million barrels. It has the largest oil reserve that can last for over 50 years. It produces the cheapest oil in the world at about $7 per barrel. It makes over $590 million in profits almost every day, which should satisfy any long-term investor.
The question remains as to how much the government will take or impose as taxes and royalties. There is also the concern of the Saudi oil company getting involved in activities outside its core business of oil and gas such as building universities, football stadium and hospitals for example. After waiting for about four years, Aramco stocks may trade next month in the Saudi stock market at a price of SAR 32 or $8.5 per share or more.
This depends on the future trading levels. As of last Thursday, it collected about $ 19.5 billion for its initial offer of 1.5 percent, and it needs to reach the magic established number by Alibaba of $20 billion to become the world’s largest IPO.
This was not the original intention of Aramco IPO. It has become a national duty to buy into Aramco. Local listing is the easy way out for now with $20 billion going to the government treasury in cash for meeting the deficits and moving to the next step.
This will satisfy every Saudi national of becoming part owner of the “jewel in the crown”. They will earn annual cash dividends to become real owner of their wealth, especially when Aramco is fulfilling partially its long-term objective, and being in par with its peer international oil companies.
By Kamel Al-Harami Independent Oil Analyst