Saudi Arabian oil company Aramco may be on track to have one of the highest-valued IPOs in history.
Aramco, one of the world’s largest oil producers and one of the most profitable companies in the world, will reportedly sell 1.5% of its shares, for an estimated $25.6 billion according to its prospectus filed in Saudi Arabia. Aramco is currently valued at approximately $1.7 trillion dollars, and will reportedly list its shares in Saudi Arabia before the end of the year.
Shares of the company will only be for sale on Tadawul, the Saudi stock exchange, and will only be sold in the Suadi currency, the riyal. American investors will not immediately be able to buy shares of Aramco but will be able to invest by purchasing funds through managed portfolios or ETFs.
Details about the Aramco IPO
Discussions around Aramco’s potential IPO began in 2016, when Saudi Crown Prince Mohammad bin Salman (also known as MBS) announced plans to sell shares of the company to spur economic reforms in the country. MBS reportedly pushed for a valuation of $2 trillion. But, following an attack on Aramco’s oil facilities and questions about the valuation from potential investors, the valuation dropped to $1.7 trillion, according to the Wall Street Journal.
An IPO can signal a company’s need for capital to fuel growth. In the case of Aramco, the IPO is reportedly designed by MBS to raise money for the Saudi Arabian economy and to inspire diversification in the country’s oil-focused economy, according to NPR. Money from the IPO will reportedly be put into the nation’s sovereign wealth fund, which could be used to develop other parts of Saudi Arabia’s economy. Saudi Arabia also faces a mounting budget deficit that is expected to grow to 187 billion riyals ($49.86 billion) by 2020.
Aramco’s public offering is also happening just over a year after U.S.-based journalist Jamal Khashoggi was murdered in Saudi Arabia. Saudi Arabia’s relationship with the United States is struggling due to Khashoggi’s murder and growing disapproval from Congress over Saudi Arabia’s involvement in the civil war in Yemen.
If Aramco hits its goal of raising $25.6 billion during the IPO, it would surpass Chinese e-commerce company Alibaba’s IPO. Alibaba had the highest-valued IPO in history in 2014 when the company raised $25 billion, topping this list:
Here’s a look at some of the other IPOs over the last 20 years that raised the most money.
|Company (IPO Year)||Amount Raised|
|Alibaba (2014)||$25 billion|
|Visa (2008)||$19.7 billion|
|General Motors (2010)||$18.1 billion|
|Enel SpA (1999)||$17.4 billion|
|Facebook (2012)||$16 billion|
More about IPOS
An IPO occurs when a company sells its shares to the public through a stock exchange for the first time. Find out more here.
When a company has an IPO, it’s typical for a newly issued stock to be subject to significant increases and decreases, at least in the short run. That’s known as volatility. Volatility for the stock can be especially high in the first few months following an IPO, and so can the potential for short-term losses as a result.
Why? Investors, analysts, and other stock market participants are often uncertain about the prospects of a newly public company, and that can all factor into the share price. For example, investors typically want to know if a company is worth the valuation it achieved at the time of its IPO. They may also want to know if a company will be profitable in the years to come, or whether it will continue to have losses.
After an IPO, prices may fluctuate due to the expiration of something called a lock-up period, where company insiders such as employees sign an agreement that prohibits them from selling shares for a specified period of time. When lock-up periods expire, insiders can tend to sell their stock in order to realize profit, depressing the stock price in the process.