A Few Concerns Saudi Aramco Should Address Ahead Of IPO

Saudi Aramaco's initial public offering took a major step forward on Sunday and would likely need to address four sources of concern.

Saudi Arabia values its state-owned oil company at $2 trillion but even a less generous $1.5 trillion would make it the world's largest IPO, CNBC reported. Details remain scarce and experts are already raising their concerns for the company to address.

Few Details

Saudi Aramco hasn't confirmed a final timeline for its IPO, how much it plans to float, and under what valuation, David Lennox, resources analyst at Fat Prophets, told CNBC Monday. There are too many questions and the answers will make a difference in investor interest.

Dividend Growth

Saudi Aramco already communicated to investors it will offer growing dividends but will remain subject to multiple factors, Lennox also told CNBC. The company is expected to offer $75 billion in dividends in 2020 but since the share count isn't known it is unclear what the dividend yield will be.

"If they issue a bucket load of shares then that dividend amount is not going to go far," Lennox said.

Politics

International investors looking to buy shares of Saudi Aramco should be aware of geopolitical concerns, Quilvest Wealth Management's Bob Parker said Monday on CNBC. Just a few months ago a major part of Saudi Aramco's infrastructure was damaged in a drone attack which may have links to Iran.

"Do you want to invest in a region where the relationship with Iran is fraught?" he said.

Price Of Oil

Saudi Aramco being an oil behemoth is obviously tied to the price of oil. Five years ago both Brent crude and WTI crude were trading north of $100 a barrel but traded on Monday near $62 and $57, respectively.

The Saudi company might have missed its opportunity when oil prices were higher and it didn't face U.S. shale companies who represent a new and "well-established" competitor, Lennox said.

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