Saudi Arabia values oil giant Aramco far below original target

The government is preparing Saudi Aramco for what could be the world’s biggest-ever initial public offering.

Sign of Saudi Aramco''s IPO is seen during a news conference by the state oil company in Dhahran
Saudi Aramco, the world's most profitable company, could raise up to $25bn in what could become the world's biggest ever initial public offering [File: Hamad I Mohammed/Reuters]

Saudi Aramco has set a price range for its listing that implies the oil giant is worth between $1.6 trillion to $1.7 trillion, below the two trillion dollars the Saudi Arabian crown prince had targeted but still making it potentially the world’s biggest initial public offering.

Aramco said on Sunday it plans to sell 1.5 percent of its shares or about three billion shares, at an indicative price range of 30 riyals ($8.00) to 32 riyals ($8.53) each – valuing the IPO at as much as 96 billion riyals ($25.60bn) at the top end of the range.

If priced at the top, the deal could just beat the record-breaking $25bn raised by Chinese e-commerce giant Alibaba in its stock market debut in New York in 2014.

Aramco’s float is the centrepiece of Crown Prince Mohammed bin Salman‘s plan to diversify the world’s top crude exporter away from oil.

Aramco does not plan to market its domestic IPO abroad, three people familiar with the matter said, which suggests international roadshows will not take place.

“This will put the burden of the deal on local and regional banks,” one of the three people said.

“This means most of the investors will participate as Qualified Foreign Investors in a Saudi transaction,” another one of the people said.

Aramco finally kicked off its IPO on November 3 after a series of false starts. Crown Prince Mohammed, who had floated the idea of the listing four years ago, is seeking to raise billions of dollars through the deal to invest in non-oil industries and generate employment.

But the investment world is still trying to decide what the famously secretive company is worth. Analysts from banks working on the Riyadh bourse had projected a wide valuation range for Aramco of between $1.2 trillion to $2.3 trillion.

On one hand, Aramco is the world’s most profitable company with a planned dividend of $75bn next year, more than five times greater than Apple’s payout, which is already the biggest of any S&P 500 company.

On the other, it is a bet on the price of oil at a time when global demand is expected to slow from 2025 as measures to cut greenhouse gas emissions are rolled out and the use of electric vehicles increases.

Risky bet?

The deal is also rife with political risk, as the Saudi government – which relies on Aramco for the bulk of its funding – will continue to control the company. Prince Mohammed’s reputation was tarnished by the murder of Saudi journalist Jamal Khashoggi last year.

In addition, Aramco’s oil plants were targeted on September 14 in attacks which initially halved its output. The firm has said the strikes would not have a material impact on its business.

The share sale is expected to be a huge hit among Saudi citizens who are being offered 0.5 percent of the company.

Al Jazeera’s Economics Editor, Abid Ali, says many of the country’s billionaires, some of whom were detained by Saudi authorities in Riyadh’s Ritz Carlton hotel in a 2017 anti-corruption crackdown, are likely to also be big investors when the shares are sold.

“On that level, it will be a success, because on the day that the shares will be sold, the Saudi pension funds, investment funds, will pick up any of the stock that’s left over,” Ali said. 

But, he says, international investors are staying away.

“There are different ways to value Saudi Aramco. There’s use of the oil price, free cash flow, and dividends. And on most of these measures, the maths just did not stack up. And many international investors didn’t fancy being a passenger in a car that’s being driven by the Saudi authorities,” he added.

Retail investors have until November 28 to sign up for the IPO while institutional investors can subscribe until December 4, with company management going on marketing roadshows this week.

The Aramco listing means a year-end rush for equity markets with Alibaba currently taking orders for a Hong Kong listing that is expected to raise up to $13.4bn for the online retailer.

The Riyadh listing comes after initial hopes for a five percent IPO on the domestic and international bourses were dashed last year amid debate over-valuation and where to list Aramco overseas.

Aramco said the IPO timetable was delayed because it began a process to acquire a 70 percent stake in petrochemicals maker Saudi Basic Industries Corp.

Source: Al Jazeera, News Agencies