Saudi Aramco had a highly successful IPO due to its unmatched profitability, with $68 billion in net income over nine months in 2019. It benefits from very large oil fields comprising 15% of global reserves, allowing for lower costs and higher output than competitors. However, only 1.5% of shares were traded on Saudi's small stock exchange. Prior to the IPO, Saudi Arabia's economy depended on oil revenues, which contributed over 90% of state income. When oil prices crashed in 2014, it caused fiscal deficits and falling foreign reserves. The IPO was part of Crown Prince Salman's Vision 2030 plan to diversify the economy away from oil. After the IPO, Saudi's

1. Saudi Aramco: Case Study
Made by:
Prachi Singla (17104028)
Kunal Goyal (17104073)

2. Reason for Success of IPO
 Aramco’s high valuation ($2 trillion) can be attributed to it’s unmatched
profitability. The company reported $68 billion in net income for the first nine
months of 2019.
 Low costs because of very large oil fields (15% of the total world’s reserves)
resulting in far higher output than any other oil company.
 It can also be observed that the company witnessed a different trading
environment than experienced by its publicly listed Western rivals. The Saudi
exchange is relatively small, and only around 1.5 percent (values at $25.6
billion) of Aramco shares are being traded.

3. Political and Economic Scenario: Saudi Arabia Pre IPO
 Early 20th century, economy of kingdom depended on religious tourism.
 1920s: recession which dwindled tourism industry; King Ibn Saudi released proposal for oil exploration.
 1939: Petroleum export began
 1980s: Modernization of Saudi Arabia from a tribal structure. Rentier state: the government depended on natural resources
and not on tax collected from citizens. In return, the monarchy asked for obedience from citizens
 1988: Saudi Aramco – Aramco acquired by Saudi government
 Boom years – (2003-2013): Welfare state- oil prices rose form $30 to $110 per barrel, heavily subsidised education, health
care, housing, electricity, water and petrol.
 Until mid 2014: oil contributed to more than 90% of state revenue. More than 44% of Saudi’s GDP and 85% export revenue.
 2014- December: Oil prices crashed by 40%. Shale Oil revolution in USA. Saudi maintained production while taking a price hit
to drive out high cost operators from the market but it didn’t happen.
 2015: Oil prices hit rock bottom; fiscal deficit: $40 billion. OPEC lost its edge as price maker.
 2016: Saudi foreign reserves fell by $100 billion. Employment growth decreased by 12%. The future of oil was bleak. The
supply side window was estimated $27 (break even price for ARAMCO) to $70 (breakeven point for IOC) . Saudi Arabia's Vision
2030 by Crowned Prince Salman for diversification of economy.
 2017: Oil price was $64 and constantly changing with disruption in technology. Companies worldwide started taking steps
toward renewable energy with rising concerns about climate change. Political reforms to cut subsidies and increase tax
revenues. No income or corporate tax but value added tax.
The ideology of Saud family was revenue oriented and conflicted with profitability. With IPO, the control of pricing in the hands
of the Saud family would have shifted to the investors to ease them. This indicated a need of transparency.

4. Political and Economic Scenario:
Saudi Arabia Post IPO
 The Saudi economy grew 0.4% post IPO, according to official estimates, as the
kingdom cut its crude production under a global supply reduction agreement.
The government expected growth of 2.3% next year, supported by non-oil
sectors.
 Aramco’s revenues have taken a battering. Free cash flow slumped to $6.1
billion in the second quarter, but the company maintained its $18.75 billion
dividend payment. It had no real option. Before floating 1.5% of the
company’s shares on the local stock market, its majority owner, the Saudi
government, promised that dividend payments in 2020 wouldn’t fall below
$75 billion. Unless the company’s fortunes change dramatically, it will be
impossible to maintain those payments without resorting to heavy borrowing.

6. Thank You!