Thursday, December 19

Aramco declares USD 1.71 trillion valuation of its IPO, Will Sell 1.5 Percent Stake

Saudi Arabia put a value of up to USD 1.71 trillion on energy giant Aramco in what could be the world’s biggest IPO, but missed Crown Prince Mohammed bin Salman’s initial target of USD 2 trillion.

Aramco said it would sell 1.5 percent of the company in a blockbuster initial public offering worth USD 24-25.6 billion, scaling down Saudi Arabia’s initial plan to sell up to five percent of the firm.

“The base offer size will be 1.5 percent of the company’s outstanding shares,” the state-owned energy giant said as it began taking bids from investors in a price range of 30-32 Saudi riyals per share (USD 8-8.5).

The much-delayed offering, a cornerstone of Prince Mohammed’s ambitious plan to diversify the oil-reliant economy, rivals the world’s biggest listing — the USD 25 billion float of Chinese retail giant Alibaba in 2014.

Aramco had initially been expected to list on two exchanges, with a first flotation of two percent on the kingdom’s Tadawul bourse, followed by a further three percent on an overseas exchange.

But the firm has said there are no current plans for an international stock sale, indicating that the long-discussed goal has been shelved for the time being.

The IPO has been dogged by delays since the idea was first announced in 2016, with Prince Mohammed’s desired valuation of USD 2 trillion meeting with scepticism from investors and analysts.

“(The) first impression is that (the) price is a sensible compromise and that it will sell,” Tarek Fadlallah, chief executive officer of the Middle East unit of Nomura Asset Management, said on Twitter.

If priced at the top end of the range, it could eclipse Alibaba to become the world’s biggest IPO, Fadlallah added.

Saudi Arabia is pulling out all the stops to ensure the success of the IPO, a crucial part of de facto ruler Prince Mohammed’s plan to wean the economy away from oil by pumping funds into megaprojects and non-energy industries.

S&P Global Ratings said the stock market debut could enable the kingdom to strengthen its financial position.

“If subsequently effectively deployed, the funds raised could be used to support longer-term economic growth in Saudi Arabia,” it said.

The government has reportedly pressed wealthy Saudi business families and institutions to invest, and many nationalists have labelled it a patriotic duty.

Last week senior cleric Abdullah al-Mutlaq sought to encourage Saudis to invest in the IPO, saying in a local television programme that it was permissible in Islam and even religious scholars were likely to participate.

Even for the domestic listing though, there are reports the firm is struggling to attract foreign institutional investors, amid an uncertain outlook for the energy sector and questions over company disclosures and governance.

In its prospectus released last week, the company lists a variety of risks ranging from terrorist attacks to geopolitical tensions in a region dominated by Saudi-Iran rivalry.

One striking element was a warning that global oil demand may peak within the next 20 years, citing a forecast from industry consultant IHS Markit. It also acknowledged that climate change concerns could reduce demand for hydrocarbons.

But Aramco, a cash cow that catapulted the kingdom to become the Arab world’s biggest economy, does appear to hold enormous appeal for local retail investors.

Many Saudis are seeking to tap lenders and sell personal assets to raise money to invest in the share sale.

Aramco last year posted USD 111.1 billion in net profit. In the first nine months of this year, its net profit dropped 18 percent compared with the corresponding period of 2018, to USD 68.2 billion.