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Elite Capital International – Aramco IPO Update Part 2 – The Numbers, Risks and Opportunities
Saudi Aramco is the most valuable company in the world, having generated $111 billion in net income in 2018
By: Elite Capital International Ltd
Aramco published its first ever-half year earnings in August. It reported net income of $46.9 billion, a 12% fall from the $53 billion for the same period a year ago because of lower oil prices. It also said it would pay a special dividend of $20 billion to its biggest shareholder, the Saudi kingdom.
Aramco has huge reserves of 263 billion barrels of oil and 320 trillion cubic feet of natural gas, according to an independent audit which was commissioned to address the group's lack of transparency.
The company has very low debt levels. It was the largest cash holder of all non-financial companies in the Europe, Middle East and Africa region in 2018, with €43 billion on its balance sheet, according to credit-ratings firm Moody's. That compares with Apple's cash balance ($245 billion) and Microsoft ($128 billion).
Geopolitical tensions in the Middle East pose a constant risk for investors. Saudi's defense vulnerabilities were exposed in September after attacks on Aramco's largest oil-processing facilities temporarily impacted about half of the oil group's crude production. That prompted Fitch Ratings to downgrade Aramco's credit by one notch to an 'A' rating. Riyadh and Washington blamed Iran for the attacks, a charge denied by Tehran.
Oil prices are expected to remain under pressure this year and next, according to a Reuter's survey. The poll of 51 economists and analysts forecast Brent crude would average $64.16 a barrel in 2019 and $62.38 next year.
The oil group has announced plans to increase its dividend payments to at least $75 billion a year starting in 2020 through to 2024. However, any payout is at the discretion of the Aramco board.
Foreign investors can bid for a share allocation in the IPO, but their participation could be limited if local investors subscribe to the IPO.
Foreigners were first allowed to own shares directly in Saudi companies in 2015.
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