- [Narrator] So, you're an investor,
you're looking for places to put your money,
and you keep hearing about what could be
the biggest IPO of all time.
Saudi Aramco.
- [Man] The world's biggest share offering.
- [Woman] The biggest IPO in history.
- [Narrator] To be clear, the share sale is happening
on the local stock exchange, the Tadawul,
and it's mostly aimed at Saudi Arabians.
- It's on ATMs, it's on billboards.
The state-owned newspapers are advertising it.
Banks are offering loans for people
to buy shares in Aramco.
- [Narrator] Aramco isn't just any old company.
It's the most profitable one in the world.
Its desired valuation, even on the low end,
dwarfs corporate giants like Apple or Amazon.
But its road to going public has been long and complicated.
- Taking the world's most profitable company to market
has not been an easy job.
- It's all about the valuation.
- After years of delay and amid new security threats
posed by rival Iran.
- Saudi Aramco announcing plans of course
to list on the Tadawul.
- [Narrator] So, is Aramco a good bet for investors?
There are a few things you need to consider.
First is how Aramco makes money.
Simply put, oil.
And that's great when oil markets are strong,
but going all in on one asset, in this case oil,
means you're exposed to its value.
And that value changes a lot.
In 2018, Aramco turned a bigger profit
than any other company.
Still, the company's third-quarter net income this year
was down 30% from the same time last year.
That's in part because of lower oil prices.
With all of the uncertainty around the price of oil,
it's hard to tell if Aramco can grow.
And experts can't even agree
on how much the company is actually worth.
A very basic way to look at Aramco's value
is based on how much oil Saudi Arabia has underground.
In 2018, the kingdom controlled nearly 18%
of the world's reserves.
If Aramco could make a roughly $8 profit
on each of those barrels,
that would give it a $2 trillion valuation.
But Aramco's latest price target
falls $300-$400 billion short of the $2 valuation
the Crown Prince was aiming for.
That lower price target acknowledges some risks
Aramco's business faces,
like tensions in the Middle East,
the price of renewable energy,
and demand for electric cars.
And Aramco's prospectus acknowledges that climate change
could have a negative impact on its business.
The energy market is changing,
and Aramco may have to change too.
In 2018, roughly 34% of the world's energy
was fueled by oil,
but there's only so much oil to be drilled,
and the market for renewable energy is on the rise.
The share of renewables in global energy consumption
is expected to grow from 4% today to 15% by 2040.
The oil industry has been under pressure
from regulators and politicians around the world
to help develop cleaner alternatives to fossil fuels.
- So a lot of the oil majors globally
have been making investments in the last couple of years
into new energy businesses.
And these can be wind farms,
it can be electric vehicle charging stations.
But at this stage we're not seeing any big moves by Aramco
into renewable energy.
- [Narrator] While Aramco itself
isn't investing much in renewable energy,
the country of Saudi Arabia wants to.
The Crown Prince plans to use some of the money
raised from Aramco's IPO
to make his country less reliant on oil
by investing in things like technology,
tourism, wind, and solar power.
He can do that because the Saudi Kingdom
technically owns Aramco,
and the Crown Prince can potentially
do what he wants with the company,
as long as the government controls it.
That's another big question among investors.
Even after an IPO,
it might be hard to know exactly
where the Saudi government starts and Aramco ends.
Just look at Aramco's board.
Six of the 11 members have current or former ties
to the Saudi government,
and the government's priorities are baked
into Aramco's business plan.
Its prospectus even says Aramco
might do things for the Saudi Kingdom
even if it doesn't make the most sense financially.
- The Saudi Kingdom is the shareholder of Aramco,
so it has absolutely been in the driving seat
of whether or not this IPO goes ahead.
And that has been one of the reasons
that the IPO has been repeatedly delayed
since it was first announced in 2016.
The other issue is ESG,
environmental social governance issues.
These have been things that investors
have been growing increasingly concerned about,
and there's definitely some issues around that for Aramco,
around environment, around human rights.
- [Narrator] In 2018, Jamal Khashoggi,
a journalist who was critical
of the Saudi Kingdom's leadership,
was murdered by Saudi operatives.
While the United Nations and CIA
have implicated the Crown Prince
in the ordering of the murder,
the kingdom has denied his role.
After the murder, some investors
publicly distanced themselves from the country
by dropping out of a big Saudi business conference.
Now the Saudi government's role in Aramco's future
is unclear.
Aramco is only putting a small percentage of its business
up for sale,
so the kingdom will still own most of the company
after the IPO.
That doesn't just present an ethical dilemma for investors.
It raises tangible security concerns too,
since Aramco could be a target
for countries at odds with Saudi Arabia.
Just think back to September,
when a drone attack briefly wiped out
half of Aramco's oil production.
Saudi Arabia blamed Iran for the airstrikes,
but Iran has denied its involvement.
The cost of recovering from these September attacks
were part of the reason Aramco's net profits for Q3
were down 30% from last year.
And Aramco's prospectus said terrorism and armed conflict
could have a significant impact on its business.
While it took less than a month for the company
to return to its original production output,
the attacks showed investors that Aramco is facing
some pretty serious security risks.
Even being the world's largest
or the world's most profitable company
doesn't mean it will necessarily be successful
after it goes public,
and the IPO isn't expected to be
the big global offering it was initially pitched as.
After pressure built up from international investors
to disclose more information about its business,
Aramco decided to gear the IPO
mainly towards Saudi investors.
Aramco declined to comment on a story
about its IPO obstacles,
and the Saudi government said the IPO
has gone "according to plan from day one."
- So is Aramco a good bet?
Well, they are guaranteeing a dividend.
But on the flip side, it is hard to see
what the story for this company will be in future
as we move through the energy transition,
away from fossil fuels and into more new energies.
(gentle music)