News that Saudi Arabia may list shares in its state oil company Aramco have investors agog at the sheer size of the $1 trillion entity that might eventually emerge from an IPO. But, as Hayley Platt reports, there could be risks for investors, too.
It's the world's largest oil firm with crude reserves of about 265 billion barrels. Currently Aramco is state owned. But the Saudi government is thinking about selling part of it off. It needs the cash to pay down its near $100 billion deficit. The move could lead eventually to the creation of a company worth 1 trillion dollars - the biggest of all listed firms. And comes against the background of the recent, deep slide in oil prices. On Wednesday oil dipped below $35 dollars a barrel - its lowest in 11 years. CEBR's Vicky Pryce. (SOUNDBITE) (English) CEBR, CHIEF ECONOMIC ADVISER, VICKY PRYCE, SAYING: "I think What they need is more revenue of some sort, so obviously if they sell a bit of Aramco they'll get some. I think Saudi Arabia has been going through a process of at least attempting to have economic reforms, cutting back on areas of non-essential spending." Some international investors are jittery over Saudi's ability to cope with low oil prices in the long run. The government says its low debt and huge array of assets means it can cope. And it is taking steps to grow its economy. (SOUNDBITE) (English) CEBR, CHIEF ECONOMIC ADVISER, VICKY PRYCE, SAYING: "We have already seen some other countries, certainly the ones who are not able to rely on oil forever, or certainly not for the very long term, doing different things such as financial services or much more tourism even Saudi Arabia is talking about improving its tourism." Aramco produces over 10 million barrels of oil a day - three times as much as ExxonMobil, the world's largest listed oil company. A sale would certainly put a dent in the Saudi deficit. But while it should attract foreign investors - the sheer volume of a share issue could weigh heavily on the market. And raises concerns over how it would spit oil revenues with its current owner, the Saudi state.