{"id":653,"date":"2020-01-27T19:20:18","date_gmt":"2020-01-27T13:50:18","guid":{"rendered":"https:\/\/blog.tickertape.in\/?p=653"},"modified":"2021-04-06T11:38:29","modified_gmt":"2021-04-06T06:08:29","slug":"the-journey-of-saudi-aramco","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/","title":{"rendered":"The journey of Saudi Aramco"},"content":{"rendered":"\n<p>Being the world&#8217;s swing producer of oil, Aramco and its health are paramount to its many stakeholders. Until late 2019, the entity was a giant state-owned oil company but in November, it created quite some buzz after the Saudi Aramco <a href=\"https:\/\/www.tickertape.in\/blog\/ipo-investment\/\">IPO<\/a> announcement. Today, the Saudi Aramco IPO is the biggest of all in 2019 in world history.<\/p>\n\n\n\n<p>Before getting into the details, here&#8217;s a sneak peek into the Saudi Aramco IPO history and the events that made the oil-giant made what it is now.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#What-makes-Saudi-Aramco-as-it-is-now\" title=\"What makes Saudi Aramco as it is now?\">What makes Saudi Aramco as it is now?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Yom-Kippur-and-the-oil-weapon\" title=\"Yom Kippur and the oil weapon\">Yom Kippur and the oil weapon<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Saudi-Aramco-in-the-hands-of-the-home-government\" title=\"Saudi Aramco in the hands of the home government\">Saudi Aramco in the hands of the home government<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Saudi-Aramco-IPO-history\" title=\"Saudi Aramco IPO history\">Saudi Aramco IPO history<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Crown-Princes-dream-of-getting-Aramco-a-valuation-of-2-lakh-crores\" title=\"Crown Prince\u2019s dream of getting Aramco a valuation of $2 lakh crores\">Crown Prince\u2019s dream of getting Aramco a valuation of $2 lakh crores<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#The-news-that-took-away-the-dream\" title=\"The news that took away the dream\">The news that took away the dream<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Challenges-to-Saudi-Aramco-IPO\" title=\"Challenges to Saudi Aramco IPO\">Challenges to Saudi Aramco IPO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#To-trust-the-Saudi-government-or-not\" title=\"To trust the Saudi government (or not)\">To trust the Saudi government (or not)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#The-epic-failure-of-international-banks\" title=\"The epic failure of international banks\">The epic failure of international banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#The-Saudi-Aramco-IPO-listed-finally\" title=\"The Saudi Aramco IPO listed finally!\">The Saudi Aramco IPO listed finally!<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Saudi-Aramco-IPO-details\" title=\"Saudi Aramco IPO details\">Saudi Aramco IPO details<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Purpose-of-Saudi-Aramco-IPO\" title=\"Purpose of Saudi Aramco IPO\">Purpose of Saudi Aramco IPO<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#The-Saudi-Aramco-IPO-facts\" title=\"The Saudi Aramco IPO facts\">The Saudi Aramco IPO facts<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.tickertape.in\/blog\/the-journey-of-saudi-aramco\/#Other-interesting-facts-about-Saudi-Aramco\" title=\"Other interesting facts about Saudi Aramco\">Other interesting facts about Saudi Aramco<\/a><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-makes-Saudi-Aramco-as-it-is-now\"><\/span><strong>What makes Saudi Aramco as it is now?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Aramco was started in 1933, when the government of Saudi allowed Standard Oil of California to explore oil in the kingdom. This concession later attracted several investments and partnerships from today&#8217;s well-known companies such as Mobil, Exxon, and Chevron.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Yom-Kippur-and-the-oil-weapon\"><\/span><strong>Yom Kippur and the oil weapon<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>For decades, Aramco was owned and operated by foreign entities. But, the Yom Kippur war that happened in 1973 changed the scenes for Aramco (for good). But this is not the only event to be applauded, \u2018oil weapon\u2019 equally contributed to liberating Aramco from foreign hands. Amid the war, the oil-producing countries cut production of oil. Further, in early October that year, Libya followed by Saudi Arabia and other oil-producing states declared an embargo on oil exports to the US. This spiked the demand for oil, when, in reality, the supply was short.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Saudi-Aramco-in-the-hands-of-the-home-government\"><\/span><strong>Saudi Aramco in the hands of the home government<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In the end, oil-producing countries got more control of foreign-owned oil companies that operated in their borders. Saudi Arabia came to own 25% stake in Aramco in 1973 and 60% in 1974. By 1981, Saudi Arabia had finally owned Aramco. That\u2019s how Aramco became a Saudi-government entity. It has a board and executive management, but Mohammed Bin Salman, the Crown Prince of Saudi is the effective CEO. That is why, after years of protecting Aramco from modern concerns, the Crown Prince pushed for Aramco to be valued a whopping $2 lakh crores.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Saudi-Aramco-IPO-history\"><\/span><strong>Saudi Aramco IPO history<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Moving from a corporate monarchy to the global business community wasn\u2019t an easy road. But here\u2019s how they did it.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Crown-Princes-dream-of-getting-Aramco-a-valuation-of-2-lakh-crores\"><\/span><strong>Crown Prince\u2019s dream of getting Aramco a valuation of $2 lakh crores<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Many international banks were happy to market Saudi Aramco&#8217;s business. However, bad news struck and poured water over the Crown\u2019s Prince\u2019s extravagant dream of getting a spectacular valuation and the efforts of international banks in attracting <a href=\"https:\/\/www.tickertape.in\/blog\/how-do-fdi-fpi-and-fii-differ-from-each-other\/\">foreign investments<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-news-that-took-away-the-dream\"><\/span><strong>The news that took away the dream<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The Crown Prince was alleged to be the person who ordered Jamal Khashoggi&#8217;s murder. This put the idea of issuing Aramco\u2019s share out in public in danger. Because, launching the Saudi Aramco IPO looked as if the government didn\u2019t care about the murder and other human rights violations. And so the Crown Prince&#8217;s dream of claiming Aramco\u2019s valuation to be $2 lakh crores faded away.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Challenges-to-Saudi-Aramco-IPO\"><\/span><strong>Challenges to Saudi Aramco IPO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Though the international banks marketed the Saudi Aramco IPO to investors outside Saudi and investors agreed to go ahead given attractive huge profits, the journey wasn\u2019t easy this time around too.<\/p>\n\n\n\n<p>The 17th August&#8217;s attack at Aramco&#8217;s Shaybah NGL facility stopped the IPO for ~2 weeks. This attack, followed by 2 more on 14th September: Abqaiq and Khurais facilities, hampered <a href=\"https:\/\/www.tickertape.in\/blog\/low-crude-oil-prices-reasons-and-effect-on-india\/\">crude oil<\/a> production, which decreased by 54%. Though the facilities had resumed normal operations by September 25th, investors&#8217; confidence was fairly damaged.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"To-trust-the-Saudi-government-or-not\"><\/span><strong>To trust the Saudi government (or not)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The attacks were not the only concern that investors had. A lack of transparency in Saudi Aramco&#8217;s relationship with the government was another one. You see, Aramco&#8217;s land and oil reserves are owned by Saudi Arabia and for investors to <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in a government-controlled company, trust is paramount. So, did the foreign investors not trust the government of Saudi? No, that&#8217;s not it.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-epic-failure-of-international-banks\"><\/span><strong>The epic failure of international banks<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Foreign investors\u2019 demand for the Saudi Aramco IPO didn&#8217;t meet the Crown Prince&#8217;s expectation of a $2 lakh crores-valuation. When the international banks put this news across the company&#8217;s chairman, Saudi Aramco diluted&nbsp; their involvement. Now, just 3 banks (including 2 local banks) were left with overseeing the Saudi Aramco IPO. Since international investors stepped away, the only investors available for the oil-giant were the locals and from the gulf region.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-Saudi-Aramco-IPO-listed-finally\"><\/span><strong>The Saudi Aramco IPO<\/strong><strong> listed finally!<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When the idea of going public was first perceived in 2018, the Saudi government had planned to <a href=\"https:\/\/www.tickertape.in\/blog\/what-explains-ruchi-soyas-rally\/\">float<\/a> 5% of Aramco&#8217;s stake in a deal that would yield $100bn. It was looking at international markets such as New York or London, as well as Riyadh. However, the idea didn&#8217;t see light until late in 2019.<\/p>\n\n\n\n<p>First, it could cause legal complications in America. Second, the Crown Prince expected Saudi Aramco\u2019s valuation to be a whopping $2 lakh crore. Last, journalist Jamal Khashoggi&#8217;s murder in a Saudi consulate in Turkey had caused global fury. These events resulted in the Saudi Aramco IPO delay.<\/p>\n\n\n\n<p>Fortunately, the status of Saudi Aramco IPO revived early in 2019 after the company successfully issued international bonds. However, as stated before, international investors were not as zealous about the Aramco stock as they were about the bond, given geopolitical risks, low oil prices, and climate crisis. Nevertheless, Saudi Aramco sold a mere 1.5% stake and raised about $25 billion as against its valuation of $1.7 lakh crores. What\u2019s noteworthy is that the IPO is heavily subscribed by rich Saudis, sovereign wealth funds, and major Chinese customers.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Saudi-Aramco-IPO-details\"><\/span><strong>Saudi Aramco IPO details<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Despite facing many hurdles, the Saudi Aramco IPO performed well and was oversubscribed thrice. While 1% of the stake was open for institutional investors, 0.5% was for subscription to retail investors.<\/p>\n\n\n\n<p>The Saudi Aramco IPO listing was done on Tadawul, the only securities exchange in Arabia, where each share of the IPO was priced at 32 riyals ($8.53). The IPO raised $25.6bn by selling 3 billion shares and Aramco was valued at ~$1.7 lakh crore, which made it the world&#8217;s most valuable publicly traded company topping Apple (AAPL) at ~$1.15 lakh crore.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Purpose-of-Saudi-Aramco-IPO\"><\/span><strong>Purpose of Saudi Aramco IPO<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>While funding the Vision 2030 plan is the most popular purpose of issuing public that has garnered attention, Aramco also has other plans in place. Vision 2030 is the Crown Prince Mohammed Bin Salman&#8217;s dream of overhauling and modernizing Saudi Arabia&#8217;s economy. But for this to happen, Saudi needs to move from an oil-reliant economy to a more diversified one, which is what he is looking to do. He wants to diversify the revenue-generating sectors of the economy and concentrate on private\/public healthcare. Besides, the Saudi Aramco IPO is also expected to strengthen the Public Investment Fund, Saudi\u2019s sovereign wealth fund.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-Saudi-Aramco-IPO-facts\"><\/span><strong>The Saudi Aramco IPO<\/strong><strong> facts<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol><li>Saudi Aramco has promised its investors an annual <a href=\"https:\/\/www.tickertape.in\/blog\/cash-dividend-vs-stock-dividend\/\">dividend<\/a> of $75 billion through 2024. A lower risk and guaranteed payouts, which are the features of a bond, may have enticed most investors to go ahead and subscribe to the IPO.<\/li><li>The Saudi government oil-giant has promised one bonus share for every ten bought and held for 6 months by Saudi investors. On the flip side, if the oil price plunges, the government gets more royalties. Riding on this, <em>Bernstein Research<\/em> reveals that Aramco\u2019s profits will increase by $1.5 billion each time oil prices rise by $1<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Other-interesting-facts-about-Saudi-Aramco\"><\/span><strong>Other interesting facts about Saudi Aramco<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol><li>In 2018, Aramco reported revenue of $111 billion, almost double of what Apple made<\/li><li>Aramco&#8217;s reserves were 5 times larger than that of its rivals: ExxonMobil, Chevron, Shell, Total, and BP put together<\/li><li>Aramco&#8217;s bottom line shoots up by 1 billion every 1% rise in production<\/li><\/ol>\n","protected":false},"excerpt":{"rendered":"<p>Read about the world&#8217;s biggest IPO issued in 2019: Saudi Aramco<\/p>\n","protected":false},"author":27,"featured_media":688,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[9,1749],"tags":[],"acf":[],"modified_by":"Manonmayi","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/01\/landscape-sunset-architecture-platform-87236.jpg?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/653"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=653"}],"version-history":[{"count":21,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/653\/revisions"}],"predecessor-version":[{"id":826,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/653\/revisions\/826"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/688"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=653"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=653"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=653"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}