The Saudi Aramco company was established following a royal decree as a state entity dealing with the exploration, sale, and transportation of natural gases and crude oil. The main idea behind the company’s engagement in a public offering is believed to be driven by the need to make Saudi Arabia’s dependency on oil income through diversification of the economy. The idea is unlikely to hurt the investors as many see it as a significant opportunity to help improve natural resources and facilitate investments.
The issue of Saudi Aramco having complete government control has raised deep concern about the level of shareholders’ influence compared with the state control. Reports have shown that the company aims to have 2%-5% preferential shares, giving the government more than 95% stake (Rahman, 2020). Therefore, private shareholders will likely have minimal effect on the company’s profits and general operations. Such situations are likely to cause an increase in capital investment and operation costs. Although the company is better placed to draw local investors, attaining global market share will require the firm to lower its valuations and set it below the set base standards. To entice interested world investors, the company is promising to offer better dividends alongside shaping producer’s funds.
The company’s first idea was to offer 5% of the company’s share to both local and international markets. This translates to a public offering of between $100 and 50$ billion (Rahman, 2020). However, the plan was substituted with a 2% offer on the local industries. This would make it hard for the company to attain the target of $100 billion by offering only shares in the Tawadul market (Rahman, 2020). In addition, the company aims to have a two-stage public offering in global exchange and Saudi Arabia. In this case, Tokyo is considered one of the significant locations of its listing in the second part.
The existence of transfer restrictions leads to a loss of flexibility in timing, leading to extra costs due to foregone chances. However, the company’s policy of ensuring limitation will help prevent the premature disposal of shares that might adversely affect the company. My advice to the company on the public offering of shares approach would be to increase the private investors from the set limit of 5%. This will help to reduce significant shortcomings of total government control and enhance shareholders’ influence.
Reference
Rahman, K. (2020). An overview of corruption and anti-corruption in Saudi Arabia. Transparency International.