Aramco lights the way

Its listing would be a boon to local funds looking for a quality investment opportunity

pic by BLOOMBERG

THE proposed listing of Saudi Arabian Oil Co (Aramco), possibly by next month, on the Riyadh stock exchange will be a historic event for financial markets and put the kingdom’s exchange on the global investors’ watchlist.

The energy giant’s US$2 trillion (RM8.36 trillion) valuation would make it the most valuable company on the planet ahead of tech giants like Apple Inc and Microsoft Corp, which have market capitalisation of about US$1.1 trillion each, Alphabet Inc at US$869.5 billion or Facebook Inc which is valued at US$537 billion.

Although details of the listing are still scarce, the Saudi government is looking to sell about 2% of its national oil company (NOC) for about US$40 billion, with the money is expected to be spent on diversifying the economy away from the energy sector.

Crown Prince Mohammed Salman has opened the doors to foreign tourists as part of the move to diversify the kingdom’s economy.

If all goes well with the local listing, there could be a dual listing of Aramco on a foreign exchange, possibly in London, Tokyo or New York later on, according to reports.

The listing of Aramco will attract a global audience as the scale and role of the company in the energy market is unparallel. It produces some 12 million barrels of oil daily, accounting for about 12% of the world’s production. Thus, it has a massive say on the setting of global oil prices.

The company revealed earnings of US$68 billion in the first nine months of the year and earned US$111 billion last year, making it the most profitable company on the planet. Half of the money goes to the kingdom’s coffers.

Interestingly, the company had invited Malaysia’s NOC, Petroliam Nasional Bhd (Petronas) to be a cornerstone investor, but then opted to seek local investors from the region.

The listing will be keenly watched as some people have suggested Petronas’ upstream arm, Petronas Carigali Sdn Bhd, could be a potential listing candidate to help bring much-needed interest in the local capital market.

A RM150 billion market cap figure has been reported, which means Petronas Carigali would have the scale and liquidity that will appeal to big institutional investors and help attract fund inflows from index-linked and resource-based funds to the local market.

Its listing would be a boon to local funds looking for a quality investment opportunity.

Petronas does not reveal much of what Petronas Carigali makes in terms of financials. In the first half (1H) of this year, the total revenue for Petronas was RM121.2 billion with upstream revenue amounting to RM20.04 billion, while the gas and new energy business contributed RM38.73 billion and the downstream business made RM55.43 billion.

The NOC’s net profit for the 1H was RM28.9 billion with upstream accounting for 45% of the amount, the gas and energy business 25% and the downstream business some 10% of the amount.

Assuming Petronas Carigali accounts for the bulk of the upstream profit, it would make for a very attractive investment.

Petronas already has a significant role in the local exchange through the listing of its downstream businesses such as Petronas Dagangan Bhd, Petronas Gas Bhd, Petronas Chemicals Group Bhd, MISC Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd and KLCCP Stapled Group.

With its financial position being very healthy, Petronas does not need to list Petronas Carigali, and the government is probably better off with keeping it private for now, but the proposed Aramco listing suggests, never say never.


Bhupinder Singh is the corporate desk editor at The Malaysian Reserve.