RIYADH, Nov 17, 2019 (BSS/AFP) – Saudi Arabia on Sunday put a value of up
to $1.71 trillion on energy giant Aramco in what could be the world’s biggest
IPO, but missed Crown Prince Mohammed bin Salman’s initial target of $2
trillion.
Aramco said it would sell 1.5 percent of the company in a blockbuster
initial public offering worth $24-25.6 billion, scaling down Saudi Arabia’s
initial plan to sell up to five percent of the firm.
“The base offer size will be 1.5 percent of the company’s outstanding
shares,” the state-owned energy giant said as it began taking bids from
investors in a price range of 30-32 Saudi riyals per share ($8-8.5).
The much-delayed offering, a cornerstone of Prince Mohammed’s ambitious
plan to diversify the oil-reliant economy, rivals the world’s biggest listing
— the $25 billion float of Chinese retail giant Alibaba in 2014.
Aramco had initially been expected to list on two exchanges, with a first
flotation of two percent on the kingdom’s Tadawul bourse, followed by a
further three percent on an overseas exchange.
But the firm has said there are no current plans for an international
stock sale, indicating that the long-discussed goal has been shelved for the
time being.
The IPO has been dogged by delays since the idea was first announced in
2016, with Prince Mohammed’s desired valuation of $2 trillion 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 on Twitter.
If priced at the top end of the range, it could eclipse Alibaba to become
the world’s biggest IPO, Fadlallah added.
– Boosting state coffers –
Saudi Arabia is pulling out all the stops to ensure the success of the
IPO, a crucial part of de facto ruler Prince Mohammed’s plan to wean the
economy away from oil by pumping funds into megaprojects and non-energy
industries.
S&P Global Ratings said the stock market debut could enable the kingdom to
strengthen its financial position.
“If subsequently effectively deployed, the funds raised could be used to
support longer-term economic growth in Saudi Arabia,” it said.
The government has reportedly pressed wealthy Saudi business families and
institutions to invest, and many nationalists have labelled it a patriotic
duty.
Last week senior cleric Abdullah al-Mutlaq sought to encourage Saudis to
invest in the IPO, saying in a local television programme that it was
permissible in Islam and even religious scholars were likely to participate.
Even for the domestic listing though, there are reports the firm is
struggling to attract foreign institutional investors, amid an uncertain
outlook for the energy sector and questions over company disclosures and
governance.
In its prospectus released last week, the company lists a variety of risks
ranging from terrorist attacks to geopolitical tensions in a region dominated
by Saudi-Iran rivalry.
One striking element was a warning that global oil demand may peak within
the next 20 years, citing a forecast from industry consultant IHS Markit.
It also acknowledged that climate change concerns could reduce demand for
hydrocarbons.
But 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 $111.1 billion in net profit. In the first nine
months of this year, its net profit dropped 18 percent compared with the
corresponding period of 2018, to $68.2 billion.