Long-awaited finite details of what will be the largest initial public offering (IPO) in history were finally announced by Saudi Arabia’s state-owned oil company: Aramco. At a press conference last weekend, the CEO of the company unveiled some of the IPO’s details and revealed that it will first be offered locally on the Saudi Tadawul Exchange at an anticipated listing between 1% and 5%. However, despite the immense anticipation, reception to the IPO has been underwhelming, especially given that Aramco is the world’s largest and most profitable company. Though this calculus has great potential for the Saudi economy, it also comes with many risks and doubts related to the potential returns and timing of the move. While there is no doubt that the announcement is a positive step for Saudi economic reform plans and the company’s transparency (a requirement needed to attract investors), the press conference gave an impression that the IPO will be a gradual, long-term process, likely leaving potential investors with even more questions.
Most of these uncertainties are related to the company’s assets and the offering’s eventual trajectory, including the ultimate value of the listing, the share offering, and the percentage offered to local versus international investors. Each of these unanswered questions has led to rampant speculation about the IPO’s eventual pricing and valuation, which is expected to be announced in early December when the first listing is offered on Tadawul. Depending on the results of this local offering, the Kingdom will likely then determine the percentage to be made available on international listings. Still, lack of choice for the location of Aramco’s international listing is increasing the hopes Riyadh is placing on Tadawul. Few international exchanges, namely the London Stock Exchange, Tokyo Stock Exchange, and Stock Exchange of Hong Kong meet the needs of prestige, liquidity and oil-business interest required for investors. While previously thought of as a potentially suitable candidate, the New York Stock Exchange may have been removed from this list due to potential litigation risks.
While Aramco’s main selling point is its annual dividend payout, which totaled $75 billion in 2017 and $111 billion in 2018 (five times higher than Apple Inc.), the valuation of Aramco will probably be determined by the opportunities anticipated by investors looking to bet on the IPO. Overall, the investment will be challenged by many uncertainties related to dividends, earnings, and regional instability. Geopolitical tensions surrounding the Gulf region will play a key role in the success or failure of Aramco’s IPO and valuation. Investors’ main concerns are related to the safety of Aramco’s assets and the continuity of profits amid growing Saudi Iranian tension. These fears were reignited after the attacks on Aramco’s Abqaiq facilities last September. The strike eliminated half of the company’s production capacity and more than 5% of the global oil supply. At last weekend’s press conference, the Aramco CEO looked to assuage investor fears by saying the company was, “very safe,” and reminded observers that the price of oil normalized only two days after the attack. Despite this, the listing will face challenges in persuading interested parties that their potential investments will be shielded from increasing regional tensions. Furthermore, oversupply by non-OPEC members caused by decreasing demands on the global oil market is contributing to lower prices. Yet, Riyadh’s ability to repair the damages and restore normal production capacity at Abqaiq in only two months could persuade investors that Aramco has the ability to handle difficulties regardless of whether they result from technicalities or regional aggression.
Also, despite Aramco’s record-breaking profits, investors might be reluctant to invest given the control over oil prices exerted by the OPEC+ agreement. Any abandonment of the agreement by non-OPEC members would lead to a collapse in prices and Aramco’s profits. In addition to that, the company has faced an 18% drop of profits through the end of Q3 2019 compared to the same period in 2018.
Politically, the timing of the listing could be seen as a move by Crown Prince Mohammed bin Salman (MbS) to send a message to the international community that he is still in charge. The IPO is the main financial means to implement MbS’ ambitious Vision 2030, an economic reform plan presented by the Crown Prince in 2016 (back when he was the Deputy Crown Prince). Therefore, its success is highly linked with MbS’ ability to maintain his public image as the long-waited social and economic reformer of Saudi Arabia. Yet, the success or failure of this plan will be most felt by Saudi society as it will determine if the economic diversification path taken by Saudi Arabia will ultimately provide the much-needed job opportunities for the nation’s burgeoning youth. Yet, the 2017 imprisonment of businessmen and royal family members in the Ritz Carlton, and the 2018 killing of Jamal Khashoggi have negatively altered the perception of foreign investors toward the Kingdom’s business environment. To persuade those investors otherwise, Saudi authorities need to re-build trust regarding investment freedom and safety. As a positive sign from the Kingdom’s perspective, much of the political and business leadership that boycotted the 2018 Future Investment Initiative (Davos in the Desert), returned to the 2019 iteration of the summit, indicating that past controversies are no longer inhibiting the Kingdom’s ability to attract capital.
At least in the midterm, (during which oil will remain the world’s most desirable energy commodity), this IPO is Riyadh’s best chance to generate the capital required to fund its economic reform plan. This could be the main factor attracting regional investors who seem to have a higher trust in the listing. However, since Gulf states (not only Saudi Arabia) have not instilled similar trust internationally, the true impact of this IPO may not be felt until the region establishes a predictable business and investment climate, with Aramco continuing to attract investment by increasing its transparency.
 Rania El Gamal et al, “Exclusive: Saudi Aramco Board Sees to Many Risks for New York IPO – Sources,” Reuters, August 30, 2019.
 Reed, Stanley. 2019. “Is Aramco Worth $2 Trillion? And Other Crucial I.P.O. Questions,” New York Times, November 4, 2019.
Maher Chmayetlli and Aziz El Yaakoubi, “Saudi Aramco reports 2018 net income of $111.1 billion,” Reuters, June 12, 2019
 Dummett, Ben and Summer Said. 2019. “The $2 Trillion Question Hanging Over Aramco’s IPO,” Wall Street Journal, 5 November.
 Rupert Neate, “World Leaders Return to ‘Davos in the Desert,’ a Year After Khashoggi Boycott,” The Guardian, October 29, 2019.