There have been some blockbuster IPOs this year, some flops, and some companies that went on a rollercoaster ride but never quite made it to Wall Street.
The year of the IPO isn’t quite over, though.
Saudi Aramco, the world’s most profitable company, is going public!
Saudi Aramco is a petroleum and natural gas company based in Dhahran, Saudi Arabia, and as of right now, it’s owned entirely by the Saudi Arabian government.
That will obviously change with a public listing.
And it begs the question: Why does the world’s most profitable company, owned entirely by the Saudi Arabian government, want or need to go public at all?
And a large part of the answer is: diversification.
Saudi Arabia’s economy currently relies heavily on oil. In 2016, Crown Prince Mohammad bin Salman revealed Saudi Vision 2030, a plan to reduce the country’s dependence on oil, as well as diversify the economy, and develop public sectors such as health and education.
By listing Saudi Aramco, the kingdom will raise capital, which it can then siphon into the various projects being undertaken in order to realise its vision.
It all sounds very inspired and enlightened, but there is a litany of risks, as there always is with any company planning to go public (or maybe just any company in general)!
The prospectus Saudi Aramco filed earlier this month listed armed conflicts, climate change movements, government ties, and oil supply and demand, among others, as risks.
In terms of armed conflict, the risk is undeniable. In September, two Aramco facilities were forced to cut production after drone attacks crippled the company’s infrastructure. These attacks prompted a 20% spike in oil’s price per barrel cost.
Another interesting risk is climate change.
We already know that the climate change movement is continuing to gather steam (rightfully so), and it appears even a trillion-dollar oil company sees it as a threat.
The prospectus says “increasing attention on climate change risks may result in an increased possibility of litigation” against Saudi Aramco.
And beyond that, the increased pressure on governments across the world to reduce greenhouse gas emissions is considered a threat to Saudi Aramco. The company readily admits the impacts of greenhouse gas related laws, regulations and international agreements are "difficult to predict with certainty."
Now, let’s set aside the possible risks (and possible returns) that the listing of Saudi Aramco brings with it, and return to the topic of diversification for a second.
In 2016, when the Saudi Vision 2030 plan was first unveiled, ownership of Saudi Aramco was transferred to the Public Investment Fund (PIF), the kingdom’s sovereign wealth fund.
So, any money that Saudi Aramco makes through its listing will be placed in that fund.
In the last few years, money from the fund has been invested in a number of companies you’d probably recognise, including Tesla and Softbank.
In fact, the PIF has a US$45 billion stake in Softbank’s Vision Fund.
This exposed it to companies such as Slack (which recently listed privately on the New York stock exchange), WeWork (which recently abandoned its plans for an IPO and had to be bailed out by Softbank), and Uber (which also listed on the NYSE this year).
More recently, the PIF invested US$400 million in CloudKitchens, the mysterious new food startup launched by Uber founder and former CEO Travis Kalanick.
The deal was reportedly completed in January, but only recently became public.
Probably because, as Forbes wrote earlier this month, this was the “first known deal in Silicon Valley since the murder of American journalist Jamal Khashoggi last year caused numerous investors to boycott Saudi funding.”
And that brings us to the elephant in the room: Saudi Arabia’s human rights record.
Anyone looking to invest in Saudi Aramco would have to ask themselves whether they are helping to further a regime that has, in recent years, murdered a journalist, entered into a brutal conflict with Yemen, used the death penalty as a tool, and categorised feminism, atheism and homosexuality as extreme ideas. And that’s just to start.
As you can see, there are lots of moving parts to this deal. And there are plenty of people and plenty of companies that may be impacted, both directly and indirectly.
Important! We’re sharing with you our thoughts on these companies for your informational purposes only. We are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
