Finance

Saudi Aramco weighs IPO of trading unit amid oil boom

At US$30 billion, it could be one of the world’s biggest listings this year

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Saudi Aramco is considering an initial public offering of its trading arm amid a boom in oil prices in what could be one of the world’s biggest listings this year, according to people with knowledge of the matter.

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The state-controlled oil major is working with banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley as it studies a potential listing of Aramco Trading Co., the people said, asking not to be identified as the information isn’t public.

The trading unit could fetch a valuation of tens of billions of dollars, the people said, with two of them saying it could be potentially worth more than US$30 billion.

Aramco, which recently became the world’s most valuable company, could sell a 30 per cent stake in the division, two of the people said, which would make it one of the world’s biggest IPOs this year. South Korea’s LG Energy Solution raised about US$10.8 billion in January.

Other major oil producers have mostly kept their trading units under wraps, wary of revealing the secrets of a significant source of profit. Aramco is still debating the merits of the potential listing, and there’s no certainty it will proceed, the people said.

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Details of the offering, including size and timing, could still change. Representatives for Aramco, Goldman Sachs, JPMorgan and Morgan Stanley declined to comment, while a spokesperson for Aramco Trading didn’t immediately respond to requests for comment.

Energy companies in the Middle East have been taking advantage of a surge in oil prices to list assets as their governments seek to reduce their reliance on oil and draw in foreign investors. Aramco is considering listing its refining company Luberef, Bloomberg News reported last month.

Bright spot

The Middle East has emerged as a bright spot for IPOs as oil prices above US$100 a barrel fill energy companies’ coffers, while increased weighting in regional indexes has led to significant equity inflows. Russia’s invasion of Ukraine and hawkish central bank policies have put a lid on listings around the globe, but the Persian Gulf has so far avoided most of the volatility and global investors have flocked to offerings in the region.

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Global investors have been drawn back to the oil and gas sector as post-lockdown demand has boosted prices and profits. The MSCI World Oil & Gas index gas risen 36 per cent this year, compared with a 17 per cent drop in the broader MSCI World Index.

Aramco on Sunday posted its highest profit since its record stock market listing after oil prices jumped in the wake of the Ukraine war.

Saudi Arabia is one of the few major petroleum producers trying to boost output capacity. Aramco will increase output capacity to more than 13 million barrels a day over the next five years, cementing its position as the world’s largest oil producer.

Many others, like Shell Plc and BP Plc, are cutting back on exploration as they shift to renewable energy and try to curb their greenhouse gas emissions. The Saudis have blamed the run up in prices on the fall in investment and said demand for oil and gas will stay strong for decades despite global pledges to move away from fossil fuels.

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Saudi Arabia also started preliminary discussions on a fresh Aramco stock offering that could raise more money than its landmark listing two years ago, people familiar with the matter said in February.

With a valuation above US$2 trillion, more than five times Exxon Mobil Corp.’s market capitalization, the price of Aramco’s equity may look expensive compared with its competitors.

Other Aramco subsidiaries that are already listed include chemicals maker Saudi Basic Industries Corp., and Rabigh Refining & Petrochemical Co. The United Arab Emirates’ national oil company has followed a similar pattern, listing its drilling unit and fertilizer maker last year.

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Aramco established the trading unit in 2011 and now trades everything from crude oil to LNG, according to its website. National oil companies in the world’s biggest crude-producing region have added trading arms in a bid to squeeze more revenue from each barrel and expand from simply exporting the raw commodity.

Aramco Trading used to be a wholly-owned subsidiary reporting into the oil giant’s Downstream division. It has since been grouped into a new unit called Sales, Trading and Supply which includes trading, crude marketing, shipping, retail and some of the overseas units.

Bloomberg.com

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