Aramco declares $1.71tn valuation in mega IPO
Riyadh, Saudi Arabia - Saudi Arabia on Sunday put a value of up to US$1.71tn on energy giant Aramco in what could be the world’s biggest initial public offering (IPO), but missed Crown Prince Mohammed bin Salman’s initial target of US$2tn.
Aramco said it would sell 1.5 per cent of the company in a blockbuster IPO worth US$24bn-25.6bn, scaling down Saudi Arabia’s original plan to sell up to 5 per cent of the firm.
‘The base offer size will be 1.5 per cent of the company’s outstanding shares,’ the stateowned energy giant said as it began taking bids from investors in a price range of SAR30-32 per share (US$8-8.5).
The much-delayed offering, a cornerstone of de facto ruler Prince Mohammed’s ambitious plan to diversify the oil-reliant economy, could exceed the world’s biggest listing - the US$25bn float of Chinese retail giant Alibaba in 2014.
Aramco had initially been expected to list on two exchanges, with a first flotation of 2 per cent on the kingdom’s Tadawul bourse, followed by a further 3 per cent on an overseas exchange.
But the firm has said there are no current plans for an international stock sale and the IPO seems to be banking on local demand, with one-third of the offering reserved for Saudi retail investors.
Aramco kicked off its investor road show on Sunday, but a source close to the company told AFP it will not be marketing the IPO overseas.
The source did not offer an explanation but the company has shied away from plans to list on foreign exchanges such as New York owing to litigation risks.
The launch has been dogged by delays since the idea was first announced in 2016, with Prince Mohammed’s desired valuation of US$2tn 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.
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 Prince Mohammed’s plan to wean the economy away from oil by pumping funds into megaprojects and non-energy industries.
‘If subsequently effectively deployed, the funds raised could be used to support longer-term economic growth in Saudi Arabia,’ said S&P Global Ratings.
‘We understand that the bulk of the funds raised will go to the government or the Public Investment Fund.’
The government has reportedly pressed wealthy Saudi business families and institutions to invest, and many nationalists have labelled it a patriotic duty.
Among those considering a sizeable investment is Prince al Waleed bin Talal, a billionaire who was held in Riyadh’s palatial Ritz-Carlton hotel in 2017 during a crackdown on corruption, Bloomberg News reported.
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 US$111.1bn in net profit. In the first nine months of this year, its net profit dropped 18 per cent compared with the corresponding period of 2018, to US$68.2bn.