Saudi Aramco IPO is up and running — but watch out for surprises
The initial public offering (IPO) of Saudi Aramco — still set to be the biggest in history on the basis of yesterday’s valuation — is up and running, and the next few weeks will produce a steam of headlines up to and including the day the shares finally start trading on Tadawul. Yesterday’s announcement answers some of the big questions that remained after the publication of the prospectus. We now know that 1.5 percent of the company will be sold, at a price range that indicates a maximum valuation short of the $2 trillion figure obsessed over by the international media.
All that can be said about this is that the final valuation was always going to be a matter of compromise. Such is the way of financial markets. The vendor wants to maximize the return, the purchaser wants to minimize the outlay. They meet somewhere in the middle and both sides walk away happy. It is the “Goldilocks” principle — not too hot and not too cold.
The fact that the IPO is not going to be directly marketed in certain jurisdictions outside the Kingdom is a red herring. Foreign institutional investors who want to take part in it can still do so via the Tadawul, because the market has relaxed the requirements on big foreign investors for the historic IPO. Aramco should be congratulated on some cost efficiency, with all those expensive trips to western financial capitals unnecessary now.
Will investors go for 1.5 percent of Aramco, or $25.6 billion worth of shares? There is no doubt it is a big ask, but all the signs from within the potential retail market in the Kingdom is that there is plenty of appetite for the issue, backed by some generous banking facilities. High net worth individuals in Saudi Arabia will need little persuasion to back the issue with their billions.
So you can expect the retail tranche — some 0.5 percent or 1 billion shares — to be pretty much sold out at top of the range levels.
The appetite of foreign investors is the great unquantifiable, at this stage, but it seems pretty safe to assume that institutions in the rest of the Arabian Gulf and Asia will make up for any shortfall among westerners.
And who knows which big player Aramco might have up its sleeve as a strategic foreign investor? The biggest IPO has the potential to throw up still bigger surprises.