Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Saudi Aramco in race for IPO record with $1.7 trillion top value

Published 11/17/2019, 09:51 AM
Updated 11/17/2019, 09:51 AM
Saudi Aramco in race for IPO record with $1.7 trillion top value

Saudi Aramco in race for IPO record with $1.7 trillion top value

By Hadeel Al Sayegh, Saeed Azhar and Rania El Gamal

DUBAI (Reuters) - Saudi Aramco is worth up to $1.7 trillion at the price range set by the oil giant on Sunday, below the $2 trillion sought by Saudi's crown prince but putting it in the running to become the world's biggest IPO.

Aramco cannot sell its shares directly to investors in the United States and other markets, as the initial public offering (IPO) will be restricted to Saudis and those foreign institutions permitted to invest in the kingdom's stock market.

The oil giant said it plans to sell 1.5% of the company, or about 3 billion shares, at an indicative price range of 30 riyals to 32 riyals, valuing the IPO at as much as 96 billion riyals ($25.6 billion) and giving the company a potential market value of between $1.6 trillion and $1.7 trillion.

This could just beat Chinese e-commerce giant Alibaba's record $25 billion New York stock market debut in 2014.

Aramco's IPO size could be bigger if there is enough demand for it to use a 15% "greenshoe" over-allotment option.

"We are planning to subscribe to the IPO in two funds that we manage," said Zachary Cefaratti, chief executive officer of Dubai-based Dalma Capital Management Ltd, adding that the preliminary valuation was "in line with our expectations".

Aramco kicked off its IPO on Nov. 3 after a series of false starts. Crown Prince Mohammed bin Salman, who floated the idea nearly four years ago, is seeking to raise billions of dollars to invest in non-oil industries, create employment and diversify the world's top crude exporter away from oil.

In its original prospectus, published on Nov. 9, Aramco said the domestic IPO would be made to institutional investors outside the United States according to Regulation S of the United States Securities Act of 1933, and inside the United States under the Rule 144A of the U.S. Securities Act.

But on Sunday in an addendum to the IPO prospectus Aramco said that it had removed any reference to such regulations, which three people familiar with the matter said suggested there would not be any international roadshows to market the shares.

"I expect this is a reflection of poor international demand," said Rory Fyfe, managing director at MENA Advisors.

"It was not worth it from their view. If there's no substantial value or demand why do it and take additional legal risk?," a banker familiar with the matter told Reuters.

Aramco is yet to name any cornerstone investors in the deal or formally disclose the listing date.

Analysts from banks working on the Riyadh bourse had given a valuation range of $1.2 trillion to $2.3 trillion for Aramco's IPO and the fall from Crown Prince Mohammed's original target underscores the challenges facing the company.

The Crown Prince's reputation was tarnished by the murder of Saudi journalist Jamal Khashoggi last year, while Aramco's oil plants were targeted in September by attacks which initially halved its output. It has said the strikes will not have a material impact on its business.

Aramco is the world's most profitable company with a planned dividend of $75 billion next year, more than five times larger than the payout by Apple (NASDAQ:AAPL), the biggest of any S&P 500 company.

But it is a bet on the price of oil at a time when global demand is expected to slow from 2025 due to measures to cut greenhouse gas emissions and rising use of electric vehicles.

There is also political risk as the Saudi government, which relies on Aramco for the bulk of its funding, will continue to control the company.

HIT AT HOME

Despite questions abroad, Aramco's IPO is expected to be a huge hit among Saudis who are being offered 0.5% of the company.

Retail investors have until Nov. 28 to sign up for the IPO while institutional investors can subscribe until Dec. 4.

The Aramco listing is part of a year-end equity market rush, with Alibaba (NYSE:BABA) taking orders for a Hong Kong listing that is expected to raise up to $13.4 billion.

The Riyadh listing comes after initial hopes for a 5% IPO on the domestic and international bourses were dashed last year amid debate over valuation and where to list Aramco.

Aramco said the IPO timetable was delayed because it began a process to acquire a 70% stake in petrochemicals maker Saudi Basic Industries Corp.

Aramco mandated 27 banks to work on the deal, including Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), HSBC, JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS).

Latest comments

Oil era will nota stop soon.
Soon ev will take over oil. Feel like they want get out of oil business lol.
Better hope all that oil is actually there. Would look to see top valuation and then short it.
Pass.
Shorting opportunity of a lifetime if at that 1.6-1.7 trillion valuation.
The banks supporting this after a 2008 bail out. Not sure banks are capable of making safe secure decisions any more. It's gotten too competitive for greed.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.