.BY ANIA IBRAJEVA | STOCK MARKET NEWS TODAY.
With $111 billion in net income in 2018, Saudi Aramco, as the firm is known, had bigger returns last year than Apple Inc. and Exxon Mobil Corp. combined. Before taxes and other expenses, the firm said it made $212 billion, a figure similar to the combined military budgets of the 28 member states of the European Union.
The financial information on Monday was disclosed in a prospectus for a planned bond sale of at least $10 billion to help fund the acquisition of a $69.1 billion stake in Saudi Arabia’s national petrochemicals firm. The 470-page document provided the first look under the hood of Aramco’s finances since the once-American-run firm was nationalized over three decades ago and its profits became state secrets.
By disclosing Aramco’s profits and other detailed financial information, some Saudi officials hope they will quell any doubts about their determination to list Aramco publicly by 2021, in what would likely be the biggest ever IPO. Saudi Crown Prince Mohammed bin Salman, the kingdom’s day-to-day ruler, wants to use the IPO to raise tens of billions of dollars to build new futuristic new cities, diversify the kingdom’s oil-dependent economy and fund a host of non-oil industries like technology, entertainment and mining.
The 33-year-old prince first broached the IPO in early 2016, but concerns over disclosing Aramco’s finances helped delay it for years, to the point that many bankers and Saudi officials working on the plan believed it would never happen. “These financials have not been open to the public. It is an important issue and this is probably a steppingstone to an IPO,” said Theodore Holland, a senior portfolio manager at Zurich-based Fisch Asset Management AG who aims to participate in the debt raising. He said there would be strong demand among investors for Aramco debt.
The financial figures—audited by PricewaterhouseCoopers Public Accountants—painted a picture of a company with unmatched financial heft. The oil firm’s 2018 net income shot up from 284 billion Saudi riyals, or the equivalent of $75.9 billion, in 2017. By comparison, Apple’s equivalent most-recent full-year profit was roughly $60 billion; Amazon.com Inc. was $10 billion and Exxon Mobil Corp. was $21 billion.
Aramco’s massive earnings numbers come despite taxes of roughly 50% to the government, which is highly reliant on contributions from the oil firm. Aramco also pays a royalty to the Saudi government of 20% of revenues up to $70 a barrel of oil, and the rate increases on a sliding scale at prices above that level. Fitch Ratings estimates that from 2015 to 2017, Aramco accounted for around 70% of Saudi Arabia’s revenues.
But the three years of financial information contained in the prospectus illustrate how tightly Aramco’s profits are tied to oil prices. Aramco reported a significantly lower net profit in 2016 of $13.2 billion, the prospectus said, when oil prices fell to an average monthly low of $31.90 a barrel in January that year. Its 2018 profits grew almost ninefold in a year when oil prices rose to over $80 a barrel.Opening up Aramco’s books doesn’t necessarily mean the company will go ahead with an IPO.