Saudi Aramco heads to market in history's biggest IPO

Saudi Aramco, Saudi Arabia's state-owned oil colossus, is set to float on its home market. Are the shares appealing? Matthew Partridge reports.

Get set for the "biggest stock market flotation in history", say Jillian Ambrose and Patrick Collinson in The Guardian. Saudi Arabia has given the go-ahead to the long-delayed initial public offering (IPO) of the state-owned oil company Saudi Aramco. Only of 1%-3% of the total company will be released onto the Saudi equity market. But the sheer size of the group, estimated to be at least 50% bigger than the next-largest listed firm in the world, means that the IPO is likely to raise at least $40bn-$45bn, eclipsing the record $25bn raised by China's tech giant Alibaba in 2015.

The flotation, only a year after the Saudi regime was implicated in the murder of the journalist Jamal Khashoggi, "brings grisly political baggage", says Alistair Osborne in The Times. It's not just a matter of "dark age" politics and a long history of political repression. The small share of the company that will appear on the exchange also means that investors "will be a tiny minority with zero clout". While the Saudis insist that the listing is motivated by a need to diversify the economy away from oil, there is the lingering question of whether it is worried that "global policies to cut carbon may hit demand and the oil price".

Balancing company and country

One of the big unanswered questions is how Saudi Aramco "will balance the needs of the company with those of the country", says Rochelle Toplensky in The Wall Street Journal. After all, even after the flotation, five members of Aramco's 11-person board of directors will be "current or former ministers in the Saudi government"; Mohammed Bin Salman, Saudi Arabia's de facto ruler, is likely to remain "deeply involved".

Investors should also note that other partially state-owned oil companies, such as Russia's Gazprom and Rosneft, trade at a large discount to those oil firms that are solely controlled by the private sector. Political and corporate governance concerns may make selling the merits of Aramco a "tough task", says George Hay on Breakingviews.

Nevertheless, those "strapping themselves into the IPO rollercoaster" will have "two credible airbags". Firstly, the company has pledged to pay out at least $75bn in dividends through 2024, with the Saudi government promising that it will "sacrifice its own share of the dividend to keep other shareholders whole" if the payout is threatened by plunging oil prices. Secondly, with the government encouraging Saudi citizens to buy shares, Riyadh has a clear incentive to prevent the share price "nosediving", since this "might undermine the regime".

We may be getting ahead of ourselves, says Stanley Reed in The New York Times. A foreign listing has been deferred, while even this one may not happen. The company has been given six months to list, so it could end up backing away from the stock offering, "if circumstances change or it fails to sufficiently excite investors".