April Fool's or Biggest IPO Ever? Floating Saudi Aramco


Of all the darndest things I've heard during the start of the year when there was no lack of them, the idea of Saudi Arabia's state oil company Aramco listing its shares takes the cake. Certainly the timing is bad given that oil prices have dropped precipitously. Hovering around $100-something in mid 2014, the price of a barrel has fallen to about a third of that. Still, desperate times may call for desperate measures. To help close a yawning fiscal deficit, Saudi Arabia may resort to an IPO despite naysayers thinking this is some kind of prank:
When one financial adviser heard about Saudi Arabia’s plans to list a company larger than the economies of most nations, he had to pull over his car because he was laughing so hard. Saudi Arabian Oil Co., or Aramco, the world’s largest oil producer, said Friday it’s considering an initial public offering. It confirmed an interview with Deputy Crown Prince Mohammad bin Salman published in the Economist Thursday. The news was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East. They asked not to be identified to protect their business interests.

For one thing, Aramco’s inner workings are opaque, making its true value a mystery. Then there’s the timing. The price of crude oil is near its lowest level in more than a decade. Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said. An initial public offering of the entire enterprise had only ever been discussed as a joke, one of the people said. 
Even if (a) oil prices have fallen by a huge amount and (b) any flotation will only see a few shares listed of subsidiaries and not the parent company, the sheer size of Aramco is something to reckon with. Given its massive proven oil reserves, some valuation models predict it will easily be the biggest initial public offering of all time. At the top of the range, astounding implied market capitalization figures of $7-10 trillion are being touted:
Saudi Arabia’s potential sale of shares in its state-owned oil giant could lead to a publicly listed company valued in the trillions of dollars, more than 10 times Apple Inc.’s peak of about $756 billion. Saudi Arabian Oil Co., better known as Saudi Aramco, on Friday held out the prospect of an IPO on the Saudi stock exchange. Aramco said it was considering “the listing in capital markets of an appropriate percentage of the company’s shares and/or the listing of a bundle of its downstream subsidiaries.”

That potential drew attention because the company produces more than 10% of the world’s oil supply every day and controls a large chain of refineries and petrochemical facilities to complement its exploration and production operations. Taken together the business could be valued at more than $10 trillion by some estimates. Exxon Mobil Corp., the largest non-state-controlled oil company, has a market value of $317 billion.
For all the hyperbole, you have to wonder though about the veracity of such figures when the "confidence interval" here ranges from "joketime" to "biggest IPO in world history." Can the secretive Saudis pull the latter off?

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