Saudi Arabia has an answer to Apple, JP Morgan says

Saudi Arabia has an answer to Apple, JP Morgan says

The initial public offering (IPO) of Saudi Aramco will provide the oil-rich kingdom with an answer to Apple in the U.S., according to the head of EMEA oil and gas research at J.P. Morgan.

Saudi Aramco announced plans to go public on Sunday, with the state-owned oil behemoth poised to determine its final launch price over the coming weeks.

In what could constitute the biggest stock market listing in history, the Aramco IPO is designed to turbocharge Crown Prince Mohammed bin Salman’s plans to diversify the economy beyond oil.

When asked why Saudi Arabia needed to list Aramco in order to help facilitate an energy transition, J.P. Morgan’s Christyan Malek replied: “Remember Vision 2030 and this national transformation plan — the crux of this was to basically transform the kingdom to get investment.”

“Basically, the U.S. has Apple, Saudi has Aramco,” he added.

‘Halo effect’

At the start of October, Apple surpassed Microsoft in market capitalization to retake the title as the world’s most valuable company.

However, if Saudi Aramco, the most profitable company in the world, achieves a valuation of $1.5 trillion next month, it will far exceed the market capitalization of the California-based tech behemoth.

On Sunday, Saudi Aramco said it is planning to list on its local stock market, the Tadawul, in December.

The Apple logo is seen on the window at an Apple Store on January 7, 2019 in Beijing, China.

Kevin Frayer | Getty Images

Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Malek urged energy market participants to think about what the Aramco IPO will mean in terms of the OPEC kingpin’s attempt to attract foreign direct investment (FDI).

“There is a sort of halo effect which I think is understated to some extent in the context of what they are trying to do as part of these long-term plans.”

“Remember, diversification of oil means other industries also expanding away from oil, whether its refining, manufacturing (or) financial services,” Malek said.

Aramco has reportedly recruited nine banks as joint global co-ordinators to lead the stock market listing, including J.P. Morgan, Morgan Stanley and Saudi Arabia’s National Commercial bank.

‘An industry-defining event’

“The kingdom is looking at this as a way to deliver the non-oil side to effectively diversify. It is so important for the kingdom to basically raise profile, get FDI into the country and arguably this IPO is one of those conduits,” Malek said.

“So, in theory, the appetite is very much linked to the kingdom’s view that they want to open up the country.”

Aramco has said its IPO prospectus will be released on November 9.

The starting gun of Aramco’s stock market listing has been eagerly-anticipated in recent years, despite repeated delays amid oil price volatility, valuation uncertainty, the location of share listing and geopolitical events — such as the drone and missile attack in September.

An Aramco employee walks near an oil tank at Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia.

Ahmed Jadallah | Reuters

“We believe that the Aramco IPO will be an industry-defining event,” analysts at Bernstein said in a research note published Monday.

Oswald Clint and Neil Beveridge, both senior analysts at Bernstein, said in the note that investors would be interested in a “monster oil” company like Aramco because of its scale, profitability and shareholder dividends.

They cite the fact that Aramco is the most profitable business in the world, with an oil reserve life of 52 years. Further to this, Aramco’s oil reserves are the cheapest to extract.

“But, there are also risks and Aramco will clearly not be for every investor.”

“Recent attacks at Abqaiq have highlighted a potential vulnerability to geopolitical risk. Fiscal stability and alignment with government cannot be assumed indefinitely. Most importantly, policies which seek to limit carbon may negatively impact long-term oil demand and pricing,” analysts at Bernstein said.

— CNBC’s Holly Ellyatt contributed to this report.

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