Earlier this month, Saudi Aramco announced its plans to go public. Now, the company has put its valuation up to $1.71 trillion. Although it could be the world’s largest IPO, it is less than Muhammad Bin Salman’s original target of $2 trillion.
According to Aramco, it would sell around 1.5 percent of the company in an initial public offering of $24 billion to $26 billion. However, the company has deviated from the original plan of selling up to five percent of the firm. The company’s spokesperson said, “The overall base offer size will be 1.5 percent of the overall shares.” The company took bids from investors at a price range of $8 to $8.5 per share.
This delayed offering is the ambitious plan of Prince Muhammad to diversify the oil-dependent economy. Moreover, this offering could become the world’s biggest listing by exceeding the $25 billion of Alibaba in 2014.
Initially, there were expectations that Aramco would list two exchanges. The first would be the flotation of two percent of the Tadawul bourse. The second would be the three percent on an overseas exchange. However, the firm has confirmed that it doesn’t have plans for an international stock sale. Moreover, the IPO is banking on local demand, with one-third offering for Saudi retail investors.
Aramco will start the investor roadshow on Sunday. However, a source close to the company made it clear that it won’t market the IPO overseas. The source didn’t explain; however, the company backed down from its plans to list foreign exchanges, like New York owing to litigation risks.
There have been several delays in the launch since the idea was first announced in 2016. However, back then, investors were skeptical of the $2 trillion valuations of Prince Muhammad Bin Salman.
Tarek Fadlallah, the chief executive officer of the Middle Eastern unit of Nomura Asset Management, said in a statement, “We believe that this price is a good compromise and it will sell.”
If the IPO is at the top end of the range, it might surpass Alibaba to become the world’s largest initial IPO. The interesting thing is that Saudi Arabia is doing its best to make sure that the IPO is a complete success. It is an essential part of Prince Muhammad Bin Salman’s plan to make the Saudi economy less dependent on oil and more on non-energy industries.
The S&P Global Ratings said, “If the funds are used effectively, they could boost the economic growth in Saudi Arabia. We know that the majority of the raised funds will go to the government.” Moreover, the government is continuously pressurizing wealthy Saudi business elites to invest in Saudi Aramco.
There are expectations that Prince Al-Waleed bin Talal would invest in the company. He is a Saudi billionaire tycoon who was held at the Ritz-Carlton Hotel in Riyadh during the crackdown against corruption.
Last week, a senior cleric Abdullah al-Mutlaq said that he would get ordinary Saudis to invest in the IPO. He also mentioned in a local television program that Islam allowed it, and religious scholars would also invest. Moreover, there are reports that the firm is struggling to get foreign investors.
Saudi Aramco knows that it should be honest with the investors. That’s why the company released a prospectus in which it listed the risks of investing, ranging from terrorist attacks and geopolitical tensions to anti-trust legislation. A notable element was a warning that the global demand for oil may increase in the next 20 years.
The company also acknowledged that the concerns of climate change could reduce demand for hydrocarbons. However, Aramco has an excellent appeal for retail investors. Many Saudis are selling their personal belongings to invest more and more money in the share sale. Last year, the company had a net profit of $111.1 billion. However, this year, the profit has dropped 18% to $68.2 billion.
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