The disposition of Wall Street to an IPO often varies along a spectrum from euphoria to indifference, and outright disdain depending on what company is going public. In the last three years, stories about the planned IPO of Saudi Arabia Co. (Saudi Aramco) has been making the rounds on Wall Street. Some people consider the IPO to be good news because it opens the Gulf energy giant to global traders and investors. Of course, some people are concerned that the initial $2 trillion valuation was unrealistic.
Nonetheless, the fact that Saudi Aramco’s IPO could become the largest IPO in history makes it worthy of note to both traders and investors. This piece explores the salient facts of the IPO and it provides insights on how to get a piece of the action if you are interested in the company and its stock.
Here’s What We Know About The IPO
Saudi Aramco is the biggest company by market cap in the world. Its pre-IPO valuation estimates typically vary from $1.2 trillion to $2 trillion. Saudi Aramco is the most profitable company in the world. It reported a net income of $111 billion in 2018. In the first two quarters of 2019, Saudi Aramco posted half-year profits of $46.9 billion, which is more than profits of the five biggest oil stocks Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDSa), BP (NYSE:BP), Total (NYSE:TM)) and Chevron (NYSE:CVX). The company is wholly owned by the Saudi government. It has a fully paid-up share capital of about $16 billion which translates into 200 million ordinary shares. The IPO will be selling about 1.5% of the stake to the public. The offer period for retail subscribers lasted from November 17 to November 28. Institutional subscribers still have until December 4 subscribe to the shares. The stock will be listed domestically on Saudi Arabia’s Tadawul Stock Exchange where it can be purchased by both domestic and qualified foreign investors.
Here’s what we are yet to find out
The final offer price for the stock is still unknown but traders can expect a hard number by December 5 at the end of the book-building period.
The Saudi government had originally planned an international roadshow to court investors from the U.S. Europe, Japan, and other countries, but it canceled the plans abruptly. Now, it is not clear when Saudi Aramco is likely to debut on international exchanges and information in the prospectus suggests that the Saudi government is restricted from selling more shares until a year after the IPO. The Wall Street Journal reports that the value of subscriptions for Saudi Aramco shares is currently about $44.3 billion. Some 4.9 million retail subscribers have subscribed for $12.6 billion worth of the stock and institutional investors have subscribed for $31.7 billion worth of the stock. It is unclear what percentage of the subscription from institutional investors is from the Gulf area and other international investors.
Would you buy Saudi Aramco stock?
The global crude oil market is gradually regaining its bullish momentum contrary to the decline that characterized much of 2018. In the year-to-date period, the price of the Brent Crude is up 19.63% and the price of the West Texas Intermediate is up 24.79%. However, the gains are not quite evident in the trading price of the stock of the 5 biggest publicly traded oil companies as seen in the chart above.
The mismatch between the price of crude oil and the performance of the biggest oil companies suggests that the stocks might be trading at a discount and there’s some upside potential ahead. By implication, the general weakness in oil stocks suggests that Saudi Aramco stock might be IPOing at a discount early traders and investors might be in for a pleasant surprise.
How To Get A Piece Of Saudi Aramco Now
Saudi Aramco’s IPO is not directly accessible to non-Saudi’s, but foreigners can still get a piece of the pie through institutional ownership. Institutional investors who are registered with the Saudi financial markets regulator can apply as a Qualified Foreign Investor. Such institutional investors are expected to have at least $500 million in assets under management; hence, you’ll find hundreds of actively managed and passive investment funds with exposure to Saudi Aramco stock. For active traders, eToro provides access to Saudi Aramco (SAOC) stock through a Contract for Difference (CFD) trading instrument. The CFD allows you to profit from the price volatility of the stock without requiring you to own the stock through the traditional method. eToro’s CFDs also provide traders with leverage which unlocks a multiplier effect on the trading capital. Of course, you’ll need to open an account with eToro to access Saudi Aramco stock. If you are new to CFDs, eToro provides new accounts with a virtual trading account that allows you to learn how to trade CFDs effectively without risking your funds until you are confident enough to trade with real money.
An Army Of International Bankers Think This IPO Is important
Saudi Aramco’s IPO is a record-breaking event; it is therefore not surprising that a near-record 25 banks are working on listing the stock. IPOs typically have 1 to 3 banks serving as underwriters, but the world’s biggest financial institutions have been in a frenzied jostle as bookrunners arranging and taking orders for the issue of shares.
Some of the banks working on the deal include Citi, Credit Suisse (SIX:CSGN), HSBC, Goldman Sachs (NYSE:GS), Deutsche Bank (DE:DBKGn), JPMorgan (NYSE:JPM), Santander (MC:SAN), and Morgan Stanley (NYSE:MS). Regional banks such as First Abu Dhabi Bank, Samba Capital, and National Commercial Bank of Saudi Arabia. In Asia, Mizuho Financial Group, Sumitomo Mitsui, and the Bank of China are serving as underwriters.
Interestingly, the Saudi government had hinted that it wanted to list Saudi Aramco with a valuation of around $2 trillion but the bankers have since lowered the valuation to somewhere between the $1.6 to $1.7 trillion range. The lower valuation means that the bankers would walk away with lower fees; however, getting the mandate to work on this record IPO helps them bolster their reputation in the global equity capital market.