The attack on Saudi oil supplies threatens what could be the world's biggest IPO. Here's what we know about Saudi Aramco.
- Saudi Aramco, the state-backed Arabian energy company is scheduled to publicly list later this year, and is estimated to raise as much as $100 billion from its IPO.
- But the strikes on Arabian oil fields could out the mammoth listing in jeopardy.
- "The attacks came at a sensitive time for Aramco. The company could see its IPO valuation pulled lower as it prepares to go public," says one analyst.
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Saudi Aramco, the state-backed oil company and the world's largest oil supplier, was scheduled to go public later this year or early 2020.
This now could be jeopardy. Saudi oil fields that are used by the oil giant were struck by drones - cutting Saudi's oil production in half.
"It indicates ongoing destabilization to global energy markets and will raise very real concerns about the Aramco IPO," Neil Wilson, chief market analyst at Markets.com, said in an email.
Ipek Ozkardeskaya, senior market analyst at London Capital Group, said: "The attacks came at a sensitive time for Aramco. The company could see its IPO valuation pulled lower as it prepares to go public."
Abqaiq, the site of Aramco's largest processing plant which processes about 7% of the world's oil, was hit in the first attack, while the second strike started fires in the Khurais oilfield which produces about 1% of the world's oil.
Oil prices surged as much as 20% to $71.95 a barrel when trading opened, later settling to just over 8%.
So far Houthi rebels in Yemen have claim responsibility for the attacks, while the Trump administration is blaming Iran.
What's clear is that Saudi Aramco's access to key oil fields are massively affected, while short term oil supplies are at risk.
All this means is that likely, Aramco will have some temporary disruption to its oil supply and will mean a delay in going public. Here is what we know so far about its potential IPO:
Aramco is practically printing money as according to Moody's it got more than $111 billion in profits last year. That figure would make it more profitable than Amazon, Apple, and Alphabet combined. Moody's said that the company is so profitable because it is "wholly-owned by the state and is expected to remain largely under government ownership even after any potential IPO in the future," adding that "the oil sector also comprises a substantial portion of Saudi Arabia's GDP and dominates its exports."
The oil giant is looking to raise $100 billion from its IPO, which would sward the next biggest IPO, Alibaba's $25 billion. That's because the Saudi officials value the company at around $2 trillion, and want to list about 5% of its stock publicly.
It's been reported by the Wall Street Journal that Aramco is looking to go for a two-stage IPO, listing $50 billion on two stock exchanges. The first listing would be on the Saudi Arabian one followed by Tokyo, which has emerged as the front runner due to disruption in London and Hong Kong.
It's not just getting its oil from Saudi Aramco.
What the attacks have shown is that Saudi and Aramco are both particularly vulnerable to attacks on oil fields. But the attacks themselves won't be debilitating to Aramco itself. Just last month, Aramco managed to secure a $15 billion deal with Asia's richest man for a stake in the world's biggest refinery in India.
Aramco has a deal with Saudi that lets it access the country's oil fields for the next forty years without interruption.
This year Saudi limited Aramco to 40 years of unrestricted access to its oil supplies. while that may not sound great long-term, Aramco is able to renegotiate that deal later on to extend the deal. Essentially it could easily be for the next half century onwards.
Aramco got a lot of interest from investors for its debut bond sale earlier this year.
The oil giant wanted $12 billion in investment this year and in return got more than $100 billion in demand as investors looked to capitalize on the state-run company's transparency push ahead of a potential IPO.
The company will have some big names helping the IPO.
So far its been reported that Aramco hired JPMorgan, Morgan Stanley, and Saudi Arabia's National Commercial Bank for top underwriting spots on the offering. While Dina Powell, a former Trump official has been helping to put Goldman Sachs in the running as well.
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