Saudi Aramco declares $1.71T valuation
Energy giant scales down initial plan to sell up to 5% of the company
Saudi oil giant Aramco is worth up to $1.7 trillion at the SR30-SR32 price range set by the company on Sunday ahead of the listing of the world's biggest IPO by middle of next month.
The latest estimate is well below the $2 trillion sought by Saudi Crown Prince Mohammed bin Salman, but positions the disinvestment as the world's biggest initial public offering.
Aramco said it plans to sell 1.5 per cent of the company, or about three billion shares, at an indicative price range of SR30 to SR32, valuing the IPO at as much as $25.6 billion and giving the company a potential market value of between $1.6 trillion and $1.7 trillion.
"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
He added that the preliminary valuation was "in line with our expectations".
The Aramco IPO, designed as the centrepiece of a plan to diversify the kingdom from oil, just barely beat Chinese e-commerce giant Alibaba's record $25 billion New York stock market debut in 2014.
Cefaratti said the 1.5 per cent stake offered with up to 0.5 per cent allocated to individual investors means institutional tranche could be only 1 per cent. "We believe the retail tranche oversubscription can easily exceed 20 times," he said.
"The institutional tranche is also expected to be several times covered by local, regional and international institutions including strategic investors such as China," said Cefaratti.
Aramco cannot sell its shares directly to investors in the United States and other markets, as the IPO will be restricted to Saudis and those foreign institutions permitted to invest in the kingdom's stock market.
Aramco's IPO size could be bigger if there is enough demand for it to use a 15 per cent "greenshoe" over-allotment option.
"[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.
Aramco kicked off its IPO on November 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 November 9, Aramco said the domestic IPO would be made to institutional investors outside the United States.
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. 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.
"Nevertheless, the IPO sends a clear signal that Saudi Arabia is committed to economic diversification," one analyst said.
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, 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.
Aramco's IPO is expected to be a huge hit among Saudis who are being offered 0.5 per cent of the company.
Retail investors have until November 28 to sign up for the IPO while institutional investors can subscribe until December 4.
The Aramco listing is part of a year-end equity market rush, with Alibaba taking orders for a Hong Kong listing that is expected to raise up to $13.4 billion.
Aramco said the IPO timetable was delayed because it began a process to acquire a 70 per cent stake in petrochemicals maker Saudi Basic Industries Corp. It mandated 27 banks to work on the deal, including Citigroup, Goldman Sachs, HSBC, JPMorgan and Morgan Stanley.
Among those considering a sizeable investment is Prince Al Waleed bin Talal, a billionaire tycoon, Bloomberg News reported.
In 2018, Aramco posted $111.1 billion in net profit. In the first nine months of this year, its net profit dropped 18 per cent compared with the corresponding 2018 period to $68.2 billion.
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