Saudi Aramco, the Saudi Arabian oil and gas company, is the world’s most profitable company, surpassing tech giants like Apple and Amazon. In 2020, the company reported a net income of $88.2 billion, making it the highest-earning company globally. This remarkable success has sparked interest among investors, with many wondering: Can I invest in Saudi Aramco?
What is Saudi Aramco?
Before diving into the investment opportunities, it’s essential to understand what Saudi Aramco is and its significance in the global energy market. Saudi Aramco, officially known as Saudi Arabian Oil Company, is a Saudi Arabian multinational oil and gas company based in Dhahran, Saudi Arabia. The company was founded in 1933 as a joint venture between the Saudi Arabian government and Standard Oil of California (now ExxonMobil).
Today, Saudi Aramco is the world’s largest oil producer, controlling around 12% of global oil production. The company’s operations span from exploration and production to refining, petrochemicals, and distribution. Its vast oil reserves, low production costs, and dominant market position make it an attractive investment opportunity.
How to Invest in Saudi Aramco?
Until 2019, Saudi Aramco was a fully state-owned company, making it impossible for individual investors to buy shares. However, in December 2019, the company went public, listing 1.5% of its shares on the Saudi Stock Exchange (Tadawul) in an initial public offering (IPO). This marked the largest IPO in history, raising $29.4 billion.
Investing in Saudi Aramco Through Local Exchanges
Saudi Aramco’s shares are listed on the Tadawul under the ticker symbol 2222.SR. To invest in the company through the local exchange, you’ll need to:
- Open a brokerage account with a local Saudi Arabian broker or a broker that offers international trading services
- Meet the eligibility criteria set by the Saudi Arabian Capital Market Authority (CMA)
- Fund your account with local currency (Saudi Riyal)
- Buy shares through the broker’s platform or a trading app
Please note that certain restrictions may apply, and not all international brokers may offer access to the Tadawul.
Investing in Saudi Aramco Through International Exchanges
In 2020, Saudi Aramco listed its global depositary receipts (GDRs) on the London Stock Exchange (LSE) under the ticker symbol ARAMCO.L. This listing allows international investors to buy and sell Saudi Aramco shares in US dollars.
To invest in Saudi Aramco through the LSE, you can:
- Open a brokerage account with a reputable online broker that offers international trading services
- Fund your account with US dollars
- Buy Saudi Aramco GDRs through the broker’s platform or a trading app
Keep in mind that some brokers may have specific requirements or restrictions for international trading.
Benefits of Investing in Saudi Aramco
Investing in Saudi Aramco offers several benefits:
Stable Cash Flows
Saudi Aramco’s dividend yield is attractive, with a payout ratio of around 70%. The company’s strong cash generation capabilities and low debt levels ensure consistent dividend payments, making it an attractive option for income-seeking investors.
Growth Opportunities
Saudi Aramco is diversifying its operations, investing in petrochemicals, refining, and renewable energy. This strategy is expected to drive growth, increase profitability, and reduce the company’s dependence on oil prices.
Low Production Costs
Saudi Aramco’s production costs are significantly lower than those of its peers, mainly due to its massive oil reserves and existing infrastructure. This cost advantage enables the company to maintain its market share and profitability, even in a low-oil-price environment.
Government Support
As a state-backed company, Saudi Aramco benefits from government support and subsidies. This backing provides a sense of security and stability, which can be appealing to investors.
Risks and Challenges of Investing in Saudi Aramco
While investing in Saudi Aramco presents several opportunities, it’s essential to consider the associated risks and challenges:
Oil Price Volatility
Saudi Aramco’s revenue and profitability are closely tied to oil prices. A decline in oil prices can negatively impact the company’s financial performance, dividend payments, and share price.
Geopolitical Risks
Saudi Aramco’s operations are concentrated in the Middle East, a region prone to geopolitical tensions and conflicts. Political instability, sanctions, or conflicts can impact the company’s operations and earnings.
Environmental and Social Concerns
The oil and gas industry is under increasing scrutiny due to environmental concerns and its role in climate change. Saudi Aramco has committed to reducing its carbon footprint, but investors should be aware of the potential reputational risks and regulatory pressures.
Limited Liquidity
Saudi Aramco’s shares may have limited liquidity, particularly for international investors, due to the company’s listing on the Tadawul and the GDR program. This can result in higher trading costs and wider bid-ask spreads.
Conclusion
Investing in Saudi Aramco offers a unique opportunity to participate in the world’s most profitable company. While the company’s strong cash flows, growth opportunities, and government support are attractive, investors should carefully consider the associated risks, including oil price volatility, geopolitical risks, environmental and social concerns, and limited liquidity.
To invest in Saudi Aramco, you can either open a brokerage account with a local Saudi Arabian broker or a broker that offers international trading services, or invest through global depositary receipts listed on the London Stock Exchange.
It’s essential to conduct thorough research, consult with a financial advisor if necessary, and consider your investment goals and risk tolerance before making a decision.
| Company | Net Income (2020) |
|---|---|
| Saudi Aramco | $88.2 billion |
| Apple | $59.5 billion |
| Amazon | $18.7 billion |
Note: The net income figures are in billions of US dollars and are based on publicly available data for 2020.
By understanding the opportunities and challenges associated with investing in Saudi Aramco, you can make an informed decision about whether this investment opportunity aligns with your financial goals and risk tolerance.
What is Saudi Aramco and what does it do?
Saudi Aramco is a Saudi Arabian multinational petroleum and natural gas company based in Dhahran, Saudi Arabia. It is one of the largest oil producers in the world and has been considered the most profitable company in the world, surpassing companies like Apple and Amazon. The company’s main business is the exploration, production, refining, and distribution of oil and natural gas, as well as the production of petrochemicals.
Saudi Aramco is responsible for the majority of Saudi Arabia’s oil production and is the main source of income for the country. The company has operations in Saudi Arabia and internationally, with subsidiaries and joint ventures in the United States, Europe, and Asia. Saudi Aramco is known for its high-quality oil and its ability to produce it at a low cost, making it one of the most profitable companies in the world.
Can individuals invest directly in Saudi Aramco?
Individuals cannot invest directly in Saudi Aramco because it is a state-owned company and its shares are not publicly traded on a stock exchange. The Saudi government owns 100% of the company, and it is not possible to buy or sell shares of the company on the open market. This means that individual investors cannot purchase shares of Saudi Aramco through a brokerage firm or online trading platform.
However, there are some indirect ways for individuals to invest in Saudi Aramco. For example, some mutual funds and exchange-traded funds (ETFs) have invested in Saudi Aramco’s bond issuances, which are publicly traded. Additionally, some investment firms and hedge funds have invested in Saudi Aramco through private placements or other investment vehicles. These investments are typically only available to institutional investors or high-net-worth individuals, and are not accessible to the general public.
How does Saudi Aramco make so much money?
Saudi Aramco makes a significant amount of money due to its low production costs and high oil prices. The company has some of the largest oil reserves in the world, and it is able to produce oil at a very low cost, around $2-3 per barrel. This low production cost, combined with high oil prices, results in very high profit margins for the company. Additionally, Saudi Aramco has a diverse range of businesses, including refining, petrochemicals, and distribution, which also contribute to its high profits.
Another factor that contributes to Saudi Aramco’s high profits is its ability to produce a significant amount of oil. The company produces over 10 million barrels of oil per day, which is a significant portion of the world’s total oil production. This high production level, combined with high oil prices, results in a very large revenue stream for the company. Additionally, Saudi Aramco has a strong balance sheet and low debt levels, which allows it to invest in new projects and expansion opportunities, further increasing its profits.
Is Saudi Aramco going to go public?
There have been reports that Saudi Aramco is considering an initial public offering (IPO) in the future, but nothing has been officially announced. If Saudi Aramco were to go public, it would likely be one of the largest IPOs in history, with estimates suggesting that the company could raise over $100 billion. An IPO would allow the company to raise capital for new projects and expansion opportunities, and would also provide an opportunity for individual investors to invest in the company directly.
However, there are also concerns that an IPO could compromise the company’s control and autonomy, as it would be subject to public scrutiny and regulation. Additionally, an IPO would require significant changes to the company’s governance and management structure, which could be a complex and time-consuming process. It’s unclear at this point whether or when Saudi Aramco will go public, but it’s clear that an IPO would be a significant event in the financial world.
Can I invest in Saudi Aramco’s bonds?
Yes, it is possible for individual investors to invest in Saudi Aramco’s bonds, although the process may be complex and require a significant investment. Saudi Aramco has issued bonds in the past to raise capital for new projects and expansion opportunities. These bonds are typically denominated in US dollars and are listed on major stock exchanges, such as the London Stock Exchange or the Singapore Exchange.
To invest in Saudi Aramco’s bonds, individual investors would need to purchase them through a brokerage firm or investment bank. The minimum investment required is typically quite high, often in the hundreds of thousands of dollars. Additionally, investing in bonds carries credit risk, meaning that there is a risk that Saudi Aramco may default on its debt obligations. As a result, investing in Saudi Aramco’s bonds is typically only suitable for sophisticated investors or those with a high-risk tolerance.
What are the benefits of investing in Saudi Aramco?
Investing in Saudi Aramco provides exposure to the oil and gas sector, which can provide a hedge against inflation and market volatility. Additionally, Saudi Aramco’s strong financial position and low production costs provide a relatively stable source of income, even in times of low oil prices. The company’s diverse range of businesses, including refining, petrochemicals, and distribution, also provides a diversified revenue stream.
Furthermore, investing in Saudi Aramco provides exposure to the growing demand for energy in the Middle East and Asia, which is expected to drive long-term growth in the company’s profits. Saudi Aramco’s strong balance sheet and low debt levels also provide a high degree of financial flexibility, allowing the company to invest in new projects and expansion opportunities. Overall, investing in Saudi Aramco can provide a stable source of income and potential long-term growth.
What are the risks of investing in Saudi Aramco?
Investing in Saudi Aramco carries a number of risks, including credit risk, market risk, and geopolitical risk. Credit risk refers to the risk that Saudi Aramco may default on its debt obligations, which could result in a loss of principal for investors. Market risk refers to the risk that the value of Saudi Aramco’s bonds or shares may decline due to changes in the market or economic conditions.
Geopolitical risk refers to the risk that political or economic instability in Saudi Arabia or the Middle East could impact Saudi Aramco’s operations or financial performance. Additionally, the oil and gas sector is subject to a range of regulatory and environmental risks, which could also impact Saudi Aramco’s operations and financial performance. Furthermore, the company’s close ties to the Saudi government may also raise concerns about governance and transparency. Overall, investing in Saudi Aramco carries a range of risks that investors should carefully consider before making an investment.