$2 trillion? Aramco courts investors to hit IPO valuation target

In last-minute attempt to secure buy-in for domestic stock market debut, Saudi oil giant meets with possible financiers.

    Aramco officials are hoping that wealthy Saudi families can make up for the likely dearth of investment from foreign financial institutions and government sovereign wealth funds [Maxim Shemetov/Reuters]
    Aramco officials are hoping that wealthy Saudi families can make up for the likely dearth of investment from foreign financial institutions and government sovereign wealth funds [Maxim Shemetov/Reuters]

    Saudi Aramco officials and advisers are holding last-minute meetings with investors in an attempt to achieve as close to a $2 trillion valuation as possible ahead of an expected listing launch on Sunday, according to three sources.

    Possible failure to reach the coveted target had caused a dilemma for Saudi Arabia's Crown Prince Mohammed bin Salman: swallow the bitter pill of going ahead at a lower valuation, or postpone the initial public offering (IPO) once again. But on Friday he gave the green light for the debut to go ahead.

    More:

    The Aramco officials and advisers have been meeting institutional investors around the world, the sources told the Reuters news agency. Chief executive Amin Nasser has seen investors in New York and London this week.

    A big sticking point is the $2 trillion valuation, often considered too ambitious by advisers and some insiders.

    A valuation closer to $1.5 trillion would be more likely, with wealthy Saudi families the main investors in the IPO, the sources said.

    "Saudi Aramco does not comment on rumours or speculations," the company said in an emailed response to Reuters queries about the meetings. Aramco added it was ready for the IPO, and that the timing would depend on market conditions.

    'Still on the road'

    A weak outlook for oil prices - against a weakening global economic situation and increasing climate change activism - could dampen investor interest, particularly in the Western world.

    "Aramco's officials and advisers are still on the road," said one of the sources, a major institutional investor.

    Saudi Arabia is separately still holding government-to-government meetings to attract investment from sovereign wealth funds in other countries, the investor added.

    The state-owned oil major has already approached governments in the Gulf and Asia, including China, to try and secure the bulk of the investment from countries on friendly terms with Saudi Arabia since the reception elsewhere has been cooler.

    The listing is the centrepiece of the crown prince's plan to shake up the Saudi economy and diversify away from oil. But there have been various delays since the 2016 announcement. A launch is now expected on November 3.

    Aramco has said it will pay a base dividend of $75bn, which at a valuation of $2 trillion would mean a dividend yield of 3.75 percent - below those already offered by competitors like ExxonMobil Corp and Royal Dutch Shell Plc.

    Shell's dividend yield is over six percent and Exxon's over five percent, according to Refinitiv data.

    Oil majors have been raising payouts to shareholders over the past few years to counter rising pressure that environmental activists are putting on investors to dump oil stocks and help the world switch to cleaner fuels such as wind and solar.

    To get on track to achieve $2 trillion, which would constitute the largest IPO in history, Riyadh needs the initial listing of a one or two percent stake on the Saudi market to raise at least $20bn to $40bn.

    Eventually, the crown prince wants to list a total of five percent of the company. An international sale is expected to follow the domestic IPO.

    But the close relationship between the crown prince and the new Aramco chairman Yasir al-Rumayyan, who also heads the Public Investment Fund (PIF) - the kingdom's sovereign wealth fund - has been a governance concern of some investors.

    The PIF aims to use the proceeds of the Aramco IPO sale to deliver on the prince's ambitious domestic and economic reforms.

    SOURCE: Reuters news agency