The greatest risks are related to Aramco's core business: oil. Growth in demand for crude is slowing down – an inconvenient truth for bankers putting the monopoly at up to $ 2 trillion. Add increasing pressure on institutional investors to dig up the oil assets they already own, as well as the difficult political environment in the Middle East and the Aramco investment case weaken.
"It's hard to see the company grow over time," said Anish Capadia, director of energy at Palissy Advisors, an investment consulting firm based in London.
"We want to take investors around the world, "President Yassir Al-Rumayan told reporters at a news conference Sunday.
Global investors will certainly give the company a good look. Aramco, which reportedly can list up to 5% stake, is in huge crude reserves. It reported a profit of $ 68 billion for the first nine months of 2019, a slowdown from the previous year, when annual revenues amounted to $ 111 billion.
"Aramco is the largest producer of lowest cost oil and still the scale of the reserve capacity makes it uniquely strategic in the global oil market", writes in a recent note to customers Hasnain Malik, Dubai-based capital manager a strategy at Tellimer, an investment bank focused on emerging markets.
The next few weeks can be rough. Crown Prince Mohammed bin Salman is reported to have requested an estimated $ 2 trillion for Aramco. But the model, managed by Palissy Advisors, puts Aramco at just $ 1 trillion. This is a huge range – and some investors will be worried about the overpayment. Some may choose to stick to existing oil and gas reserves, many of which have been publicly traded for years and offer more transparency.
"There are [are] many existing stocks that expose oil," Malik told CNN Business, "Holding a minority position in a state-owned oil company may not be that attractive."
Reducing the outlook for oil
Brent oil, a global benchmark, currently costs about $ 62 a barrel. If oil prices were between $ 70 and $ 80 a barrel, it would be easy to stick to the $ 100 billion value more for Aramco, Capadia said.
but prices are not targeted in this direction. Global economic growth is weakening, demand is dwindling, and fears of the climate crisis are escalating. OPEC said in a report released this week that annual growth in oil demand would fall to just 500,000 barrels per day at the end of the next decade as developed countries shift to renewable energy. Aramco could strengthen its grip on supply to raise prices, but not without splitting between the cartel and its allied producers.
"It's essentially a product company and the price of this product is very volatile," said Tarek Fadlala, head of they also generate diminishing efficiency. The Norwegian Giant Wealth Fund has said it will end oil and gas reserves earlier this year. According to Carbon Tracker, a think tank, every major oil and gas company, including Aramco, is committed to the latest projects that do not comply with the Paris Climate Agreement, which aims to limit global average temperatures to 1.5 degrees Celsius. Celsius.
"There are more and more funds that have a stated policy that they will not invest in hydrocarbon companies," Fadlala said. "This necessarily reduces the universe of funds that can invest in an IPO for Aramco."
Aramco can do better than its peers if climate issues reduce demand for fossil fuels because its production costs are so low, said Andrew Grant, senior analyst at Carbon Tracker. But the company will still be affected if reduced demand eats oil prices, making its margins much less attractive.
"With every national oil company, valuation is inextricably linked to that country's policies," Capadia said. He regards Aramco as less politically risky than Russia's Rosneft or Brazil's Petrobras, but more exposed than major oil companies based on developed markets.
The assassination of journalist Jamal Hashogi a year ago at the Saudi consulate in Istanbul has cooled international business ties with the kingdom. Relations have been partially corrected since then.
"LGIM is currently reviewing Saudi Aramco's investment in dealing with business, valuation and corporate governance issues," an asset management company said in a statement.