SAUDI ARAMCO, the LARGEST company in the WORLD - VisualPolitik EN

Summary

Saudi Aramco, the world's largest oil company, went public in 2019, raising $25.6 billion in the largest IPO ever. The company, valued at nearly two trillion dollars, produces over 10% of the world's oil and is central to Saudi Arabia's economy. Despite its massive size and profitability, Aramco's IPO faced challenges due to transparency issues and market skepticism about its valuation. The Saudi government's Vision 2030 plan, led by Crown Prince Mohammed Bin Salman, aims to diversify the economy and reduce dependence on oil, which currently funds 70% of government revenue and 80% of exports. The IPO was intended to finance this diversification, but the sale was limited to the Saudi stock exchange, raising less than expected and highlighting the nation's ongoing reliance on oil.

Takeaways

• 🌐 Saudi Aramco is a company with an annual turnover surpassing many countries' economies, producing over 10% of the world's oil.
• 🏆 It controls more oil reserves than any country except Venezuela, making it a dominant force in global energy.
• 💵 The company is valued at nearly two trillion dollars and can generate profits over 100 billion dollars per year.
• 📈 Aramco's IPO was the largest public offering in history, raising $25.6 billion by selling only 1.5% of its shares.
• 🌍 The IPO aimed to diversify Saudi Arabia's economy, which is heavily dependent on oil for income and exports.
• 👑 Crown Prince Mohammed Bin Salman's Vision 2030 program seeks to reduce the country's reliance on oil and create new jobs.
• 📉 Despite the IPO's success in raising capital, Aramco's listing faced challenges due to transparency issues and geopolitical risks.
• 💼 The Saudi government's push for the IPO included pressuring allies and businessmen to buy shares and offering low-interest loans for retail investors.
• 🏦 The company's market debut did not attract significant foreign investment, reflecting concerns about governance and economic stability.
• 🔍 The IPO's outcome raises questions about the effectiveness of Mohammed Bin Salman's economic diversification strategy.

Q & A

What is Saudi Aramco and why is it significant?

Saudi Aramco is the largest oil company in the world, responsible for over 10% of global oil production. Its importance lies in its vast oil reserves, second only to Venezuela, and its ability to influence the global economy. It has a market value close to $2 trillion and generates profits exceeding $100 billion annually.

Why did Saudi Arabia decide to list Aramco on the stock market?

Saudi Arabia listed Aramco to raise funds for its Vision 2030 program, which aims to reduce the country’s dependence on oil. By selling shares in Aramco, the government hoped to finance new projects, create jobs, and diversify the economy.

How much of Aramco was sold in its Initial Public Offering (IPO), and what was the outcome?

In the IPO on December 11, 2019, Saudi Arabia sold only 1.5% of Aramco, raising $25.6 billion. Although it became the largest IPO in history, the sale fell short of initial expectations, as Crown Prince Mohammed bin Salman originally planned to sell 5% and raise $100 billion.

What challenges did Aramco face in its efforts to list on major international stock exchanges?

Aramco faced two major challenges: (1) the strict transparency and regulatory standards required by international markets, which conflicted with the company’s secretive operations, and (2) lower-than-expected market valuations due to concerns over Saudi Arabia’s authoritarian regime, regional instability, and dependence on oil.

What actions did the Saudi government take to ensure the success of Aramco’s IPO?

The Saudi government took several measures to ensure the IPO's success, including pressuring local businessmen and allied countries like Kuwait and the UAE to buy shares. They also offered low-interest loans to smaller investors and launched an extensive advertising campaign.

What role does Aramco play in Saudi Arabia's economy?

Aramco plays a central role in Saudi Arabia's economy, contributing about 70% of government income and 80% of exports. The company is also a major taxpayer, paying 20% on income and 50% on profits, making it a key source of government revenue.

Why is Saudi Arabia so dependent on oil, and what are the risks of this dependence?

Saudi Arabia's economy is heavily reliant on oil, with most government income and exports tied to hydrocarbons. The risks include price volatility, the rise of alternative energy sources, and increasing environmental concerns, which could reduce global demand for oil. This dependence is problematic, especially given the country's young and growing population, which expects continued economic benefits.

How does Saudi Arabia’s population impact its need for economic diversification?

Saudi Arabia has a rapidly growing population, with 40% under the age of 25. This demographic pressure creates a need for more jobs, services, and opportunities beyond the oil sector, making economic diversification essential to meet the needs of its youth and avoid social unrest.

What are the potential drawbacks for international investors in Aramco?

International investors may be wary of Aramco due to several factors: Saudi Arabia’s authoritarian government, the lack of transparency in Aramco’s finances, regional instability in the Middle East, and the company’s deep ties to the Saudi royal family, which could lead to political interference in business decisions.

Was the Aramco IPO successful in attracting foreign investment?

The Aramco IPO was not successful in attracting significant foreign investment. Due to lower-than-expected valuations and the challenges of meeting international market standards, most shares were sold domestically, keeping Saudi Arabia’s economy closely tied to oil.