Update - March 2017: According to the FT, Saudi Aramco has chosen JPMorgan, Morgan Stanley and HSBC as financial advisers for the listing, with all likely to be underwriters when the IPO takes place, most probably in late 2018.

Saudi Arabian Oil Co., more commonly known as Saudi Aramco, is on the path to going public in what will be the largest float ever. The state owned oil behemoth is hoping to raise between $100 and $150 Billion when it places 5% of its share capital at float. This would value the company at between $2 and $3 Trillion, making it not just the largest float ever, but, the largest listed company in the world, dwarfing Apple, Alibaba, and the combined next three largest listed oil companies.

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Background

Many initially thought the news of a potential Saudi Aramco float to be false, nothing more than rumours to try and create some noise on a slow news day. However, the truth runs deep, as the float is championed by Deputy Crown Prince Mohammed bin Salman, who has outlined his Vision 2030 plan which aims to address the falling oil revenues by boosting the private sector, creating jobs, and diversifying the economy.

We will not allow our country ever to be at the mercy of commodity price volatility.

The float of Saudi Aramco will be the crowning jewel of Vision 2030 and the revenues generated from the float being invested technology and other industries including some being spent to double total production capacity for natural gas, including shale gas, from 12 billion cubic feet per day over the next 10 years, he said.

The Challenge

There are a few hurdles still in the path that must be overcome before a final date can be set. First and foremost, results from the independent audit on the oil reserves must be analysed and published. While Saudi Aramco has stuck by its story that it has 261.1 billion barrels of crude oil and condensate reserves, there has been a long running uncertainty about the actual size. Further transparency around operations and financials will also need to be given, with many viewing this as a window into the operations of the country as a whole. The last major hurdle is in determining what exactly is being floated. Saudi Aramco owns, and has owned or operated many businesses not directly related to the production of oil including, at one stage, a number of hospitals. Most analysts agree that the company will trim these from the entities being floated and look to structure the float as many of the other oil majors are structured with both oil production and downstream capabilities included.

Beyond the hurdles outlined above, there is much speculation on the valuation being sought. The biggest issue for investors is that the Saudi Government presently skims a royalty of 20% off the top and taxes of 85%. Further, the Saudi constitution stipulates that all of the oil reserves belong to the kingdom which, should it decide to, could ultimately hold the listed company to ransom. However, a successful float of Saudi Aramco, and the continued success of investors, will pave the way for the government to float more assets and open the country up further to foreign investment and diversification away from oil.

IPO Timeline

Given all of the above, it is unlikely that the float will get off before 2018, giving advisors more opportunity to make a fortune from the process. At present, and given the size of the float, advisors on the float are forecasting fees of over $1 Billion. Mapping out the process, there are two milestones for the company to reach this year. First, choosing the banks that will be involved in the IPO. Second, choosing the exchange for the float. Not long ago New York would have been the shoe-in for the float however, the political climate has changed. Donald Trump’s ban on Muslims has not done the US any favours, further compounded by a congressional vote in the US that allows families of 9/11 victims to sue the Saudi Arabian government for its alleged involvement in the terrorist attacks. Needless to say, a potential float in London or Hong Kong could be on the cards.