Aramco A Go-Go
Selling oil isn't exactly the sexiest business in the world. As a matter of fact, it's quite the opposite. Regardless, people start businesses to make money and one company in particular is better than everyone else in that regard.
That company is Saudi Aramco, officially the Saudi Arabian Oil Company. Aramco has both the world's second-largest proven crude oil reserves and second-largest daily oil production.
It's by far the world's most profitable company and the competition isn't even close. Aramco reported more than $110 billion in net income last year. That's almost more than double Apple's $59 billion in net income, which makes it the world's second-most profitable company.
To illustrate just how profitable Aramco is, the company actually saw net income drop by more than $6 billion year over year in the first half of 2019. The $46.9 billion it reported in the first six months of this year is still nearly as much as Apple reported all of last year.
Aramco is 100% owned by the Government of Saudi Arabia. That is about to change, though, as the Saudi government will list 1.5% of Aramco, or 3 billion shares, in an initial public offering. The Aramco IPO has been a long time coming. The idea was floated as far back as 2016 but was repeatedly delayed.
Aramco set an initial price this past Sunday, giving it a valuation of $1.7 trillion. Despite falling below the $2 trillion valuation Saudi Crown Prince Mohammad bin Salman believed it to be worth, it would still come to market as the most valuable company in the world. For comparison, Apple and Microsoft are both worth about $1.1 trillion. The IPO will also likely exceed Alibaba's $25 billion IPO in 2014, which was the largest in history.
Despite Aramco cancelling plans to market the IPO internationally, demand appears to be quite strong. Subscriptions for the IPO have already reached nearly $19.5 billion, in just five days.
Samba Capital, one of the banks managing the deal, said "Retail and Institutional subscription levels for the first five days of the offering have reached unprecedented scale, demonstrating the confidence of investors in Saudi Aramco."
Aramco's final pricing will take place on December 5 with trading beginning shortly thereafter on Tadawul, the Saudi Stock Exchange. The IPO is only available to investors permitted to invest in the Tadawul.
So why would the Saudi government want to sell a stake in Aramco if it's so profitable? Selling a stake in Aramco will help the Kingdom generate funds for its "Saudi Vision 2030" plan. The goal of the plan is to reduce Saudi Arabia's dependence on oil, diversify its economy, and develop public service sectors.
You know what's cool? A trillion dollars - J.T.
It’s hard to argue reducing their dependency on oil is anything but a smart decision. They likely see the writing on the wall and want to start selling shares before it’s too late. Saudi Arabia lost its title as the world’s largest oil producer to the United States last year. Also, a recent report even claimed the company faces serious long term risks from global warming.
While the Aramco IPO is pretty boring compared to technology companies with all the buzzwords, at the end of the day no other company is able to print money like they can. Aramco wants investors who like to make money. The company even committed to a minimum dividend of $75 billion per year through 2024.
With demand strong heading into the IPO, Aramco may alter plans to offer additional shares, potentially even in the U.S. In the meantime, it’s likely to become the world’s first $2 trillion publicly traded company, beating Apple, Amazon and Microsoft.
On the political side, President Trump pledged "to get to the bottom of it," and Secretary of State Mike Pompeo promised to "hold all of those responsible accountable." Neither of those things happened. Nor has the White House publicly affirmed an 11 month-old CIA assessment that Saudi Crown Prince Mohammed bin Salman (MBS) ordered the assassination.