After months of hyped anticipation, the Kingdom of Saudi Arabia finally announced last week that its state-owned energy company the Saudi Arabian Oil Company will publicly debut on the country's Tadawul stock exchange on December 11. The country's market regulator formally approved Saudi Aramco's initial public offering (IPO) of up to $60 billion, and the firm released its IPO prospectus documents on Saturday. But the energy giant declined to reveal crucial specific details on the size and scope of the transaction, including information about the final IPO price, the number of shares to sell, and the percentage of the firm's shares that will be sold. The mysterious nature of what could become one of the world's largest ever public debuts is pushing some global investors raise questions about the process and motivation.
At first glance, Saudi Aramco is the most profitable company in the world and a corporate behemoth, as Saudi Arabia insists its valuation should be around a lofty figure of $2 trillion. While it is a privately held and state-owned firm with no obligation to report results, it has recently released several earnings reports ahead of the IPO plans. Its last earnings report from June revealed a massive net profit of $46.9 billion for the first half of 2019, even though it fell 12% from $53 billion in the prior year period. Revenue was a whopping $146.86 billion, slipping $2 billion from 2018. The firm generated $38 billion in free cash flow, spent $14.5 billion in capital expenditure, paid $45.4 billion in dividends, and produced an average of 10 million barrels of crude oil per day. The firm's total assets were valued at $379.8 billion, and it boasted cash and equivalents of $39.5 billion. At least on paper, Saudi Aramco seems a financially strong company that will be generating large cash flows and profits into the future.
However, many Western investors and media outlets are becoming increasingly skeptical of Saudi Aramco's public debut. Some of the risks include the firm's promise to pay a minimum dividend of $75 billion, Saudi government interference in corporate strategy, and the country's inability to protect critical energy infrastructure from attacks. But there remains a more fundamental question around the IPO: If Saudi Aramco is so lucrative, then why go public at all? The world is largely on a path toward renewable energy, as climate movements and green policies sprout up in boardrooms and legislatures. Saudi Arabia itself is looking to diversify its economy with other sources of revenue. That means investors are afraid Saudi Arabia will pull a move like Uber (NYSE: UBER), where it cashes out with a public debut and leaves retail investors holding shares worth less than the previous private valuation. Western investors like pension funds and other institutions are doubting Saudi Aramco's public debut so much that the kingdom is currently pushing wealthy Saudi and Chinese investors to buy IPO shares.