Saudi Aramco seeks up to US$1.71 trillion in IPO valuation

DUBAI: Saudi Arabia put a preliminary valuation on its state-owned oil giant Aramco of between US$1.6 trillion and US$1.71 trillion, short of the US$2 trillion target set by Crown Prince Mohammed bin Salman in 2016.

Aramco is seeking as much as Us$25.6bil by selling a 1.5% stake. The company would raise Us$24bil if the deal prices at the lower end – just shy of the Us$25bil raised by Alibaba Group Holding Ltd – currently the world’s largest IPO. With one third of the deal reserved for saudi retail investors, Aramco will rely heavily on the local market.

The price range: 30 riyals to 32 riyals per share and Aramco will publish the final price and valuation on Dec 5.

Listing date for Aramco shares is still to be announced and it won’t make an offer in the US, Australia, Canada and Japan.

Saudi Arabia has been pulling out all the stops to ensure the IPO – key to the crown prince’s plans to diversify the economy – is a success.

It’s cut the tax rate for Aramco and is promising a hefty dividend. The kingdom has also negotiated commitments from its wealthiest families to invest in the offering as many international money managers seem ready to pass.

“We expect a decent cover in the range of two to three times oversubscription for this size,” said Aarthi Chandrasekaran, a portfolio manager in Abu Dhabi at Shuaa Capital.

“From a retail perspective, assured bonus shares and fixed dividend will support the stock price in the secondary market, not to forget the passive funds flow that follows in few weeks after the listing.”

Still, valuation has been a sticking point ever since the crown prince first floated the idea in 2016. Aramco has faced a delicate balance by pushing the valuation as close as possible to US$2 trillion – a figure that’s been met with skepticism from many investors – while making sure it’s attractive to potential Saudi buyers.

Among those considering sizable purchases are the Olayan family and Prince Alwaleed bin Talal, the billionaire investor who was held for several weeks in Riyadh’s Ritz-carlton Hotel during the 2017 crackdown on corruption.

Proceeds will be transferred to the sovereign wealth fund, which has been making a number of a bold investments, plowing Us$45bil into Softbank Corp’s Vision Fund, taking a Us$3.5bil stake in Uber Technologies Inc and planning a Us$500bil futuristic city.

The key details include institutional book-building period: Nov 17-Dec 4 and the retail subscription period: Nov 17-Nov 28

Targeted percentage of shares allocated to individual investors will be up to 0.5% of shares. Refund of excess subscription amount to individual investors: Dec 12.

Aramco earned net income of Us$68.2bil in the first nine months compared with Us$83.1bil a year ago.

Revenue slipped to Us$217bil from Us$233bil.