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Saudi Arabia Officially Starts its Anticipated State-Run Oil Firm

Initial plans call for the firm's shares to be traded on Riyadh's Tadawul stock exchange, then to later put other shares on a foreign exchange

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The Capital Market Authority board has issued its resolution approving the Saudi Arabian Oil Co. application for the registration and offering of part of its shares. Pixabay

Saudi Arabia formally started its long-anticipated initial public offering of its state-run oil giant Saudi Aramco on Sunday, which will see a sliver of the firm offered on a local stock exchange in hopes of raising billions of dollars for the kingdom.

An announcement from the kingdom’s Capital Market Authority serves as a starting gun for an IPO promised by Crown Prince Mohammed bin Salman since 2016.

Initial plans call for the firm’s shares to be traded on Riyadh’s Tadawul stock exchange, then to later put other shares on a foreign exchange.

Prince Mohammed hopes for a very-optimistic $2 trillion valuation for Aramco, which produces 10 million barrels of crude oil a day and provides some 10% of global demand. That would raise the $100 billion he needs for his ambitious redevelopment plans for a Saudi Arabia hoping for new jobs, as unemployment stands at over 10%.

However, economic worries, the trade war between China and the U.S. and increased crude oil production by the U.S. has depressed energy prices. A Sept. 14 attack on the heart of Aramco already spooked some investors, with one ratings company already downgrading the oil giant.

The announcement by the Capital Market Authority offered no timeline for the IPO.

“The Capital Market Authority board has issued its resolution approving the Saudi Arabian Oil Co. application for the registration and offering of part of its shares,” the authority said in its statement. “The company’s prospectus will be published prior to the start of the subscription period.”

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Saudi Arabia formally started its long-anticipated initial public offering of its state-run Oil giant Saudi Aramco on Sunday, which will see a sliver of the firm offered on a local stock exchange in hopes of raising billions of dollars for the kingdom. Pixabay

The Saudi-owned satellite channel Al-Arabiya reported last week, citing anonymous sources, that pricing for the stock will begin Nov. 17. A final price for the stock will be set Dec. 4, with shares then beginning to be traded on the Tadawul on Dec. 11, the channel reported. The channel is believed to have close links to the kingdom’s Al Saud royal family.

The kingdom has in the past used the company as a piggy bank for development companies, back when it was still an American company. Since buying a 100% interest in the firm by 1980, the royal family as its sole “shareholder” largely hasn’t interfered in the company’s long-term business decisions as its revenue provides around 60% of all government revenue.

But recently, there have been decisions seemingly forced onto Aramco, including the nearly $70 billion purchase in March of the petrochemical firm Saudi Basic Industries Corp. just before SABIC announced a plunge in its quarterly profits.

In Aramco’s first-ever half-year results, it reported income of $46.8 billion. Yet analysts say a $2 trillion valuation – Apple and Microsoft separately for instance are $1 trillion – may be a stretch. By announcing the start of the IPO on Sunday, Prince Mohammed may have been convinced to take a lower valuation in order to get the IPO moving. The kingdom likely is pinning its hopes on tremendous local interest to push up the company’s valuation before potentially taking some of the stock abroad.

Analysts believe Aramco will list as much as 3% of the firm on the Tadawul, with another 2% put abroad.

Saudi Aramco has sought to assure investors, given the questions over its valuation and the potential hazards of future attacks or geopolitical risk. A presentation posted to Aramco’s website last month announced the intent to offer a $75 billion dividend for investors in 2020. That’s the payment per share that a corporation distributes to its stockholders as their return on the money they have invested in its stock.

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The announcement of State-Owned Oil Firm by the Capital Market Authority offered no timeline for the IPO. Pixabay

It also pledged that some 2020 through 2024, any year with a dividend under $75 billion would see “non-government shareholders” prioritized to get paid.

ALSO READ: Chinese Economy in a Big Struggle: Report

But beyond the stocks, worries persist that Saudi Arabia could be hit by another attack like the one Sept. 14, which the U.S. blames on Iran. Iran denies it launched the cruise missiles and drones used in the attack. Yemen’s Houthi rebels claimed responsibility, but analysts say the weapons used wouldn’t have the range to reach their targets. (VOA)

Next Story

$20M Saudi Cup Attracts 143 Potential Entrants

With the inaugural running of the Saudi Cup scheduled to take place on February 29 2020

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Saudi Arabia is going to organize the world's richest horse-race event. (Representational Image). Pixabay

In August 2019 it was announced that a new race at King Abdulaziz Racetrack in Riyadh had been created. But what made this particular race stand out amount its competitors was the staggering prize fund on offer. 

With the inaugural running of the Saudi Cup scheduled to take place on February 29 2020, $20 million is up for grabs. This will make it the richest race in the world, overshadowing the Pegasus World Cup Invitational which had a purse of $16m in 2018 and the Dubai World Cup which is worth $12m. 

Jockey Club of Saudi Arabia chairman Prince Bandar bin Khalid Al Faisal declared that the Saudi Cup is being designed to be long-lasting as well as lucrative. The prestigious race will also be limited to 14 invited runners. 

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This is a major coup for the Saudi’s who have been steadily trying to attract big sporting events to their country including boxer Anthony Joshua’s most recent heavy weight win against Andy Ruiz Jr. Wikimedia Commons

For those that do get the golden ticket to run in the Saudi Cup, the benefits keep coming. Not only is race entry free but the Jockey Club of Saudi Arabia will pay for all shipping of horses as well as travel and accommodation for connections.  

This is a major coup for the Saudi’s who have been steadily trying to attract big sporting events to their country including boxer Anthony Joshua’s most recent heavy weight win against Andy Ruiz Jr. 

Given the money being pumped into the newly created Saudi Cup it will definitely attract a huge world wide audience. Maybe not as many as the 600 million viewers who tune in to watch the Grand National at Aintree every year but over time this new race will find its fans. And with $10 million going to the winner of the race, only the best thoroughbreds in the world will be running. 

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The prestigious race Saudi Cup will be limited to 14 invited runners. (Representational Image). Pixabay

So with the first ever Saudi Cup taking place in a matter of weeks, the race to get one of the 14 spots has already begun. A total of 143 horses have been put forward representing four continents, 16 countries and more than 60 trainers around the globe including huge industry names such as Saeed bin Suroor, Aidan O’Brien, Willie Mullins and Satish Seemar. The entrants include 32 Group or Grade 1 winners with plenty of American representation from the likes of Maximum Security, Midnight Bisou and McKinzie. 

Held four weeks after the Pegasus World Cup Invitational in Florida , it is also expected that the top three finishers in that race will also be issued invites even if they are not among the initial entrants. From there, entries will be whittled down to final fields, based on ratings allocated by former BHA senior handicapper, Phil Smith who spent most of his career being famous for handicapping the Grand National in England. 

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So who will race away with the $10M on February 29 2020? That is still unknown but as the entries get reduced over the next few weeks the picture will become a lot clearer. Will the Saudi Cup bring in the worldwide horse racing audience that it so desperately craves? Quite possibly, if only to witness history in the making as one horse wins the biggest race in the world.