With Saudi pulling levers, Aramco sees enough demand to pull off IPO

Marco Green
November 22, 2019

Over the weekend, senior Muslim clerics including royal court adviser Sheikh Abdullah al-Mutlaq declared that investing in Aramco was permissible.

(MENAFN - Baystreet.ca) It looks like the initial public offering (IPO) of oil giant Saudi Aramco will be a local affair after the company cancelled its worldwide road show and announced that the stock listing will occur only in Saudi Arabia.

However foreign funds do not tend to value Saudi companies as highly as local investors, partly because they are wary of regional risks, the source said.

Some of the global junior bookrunners could walk away with very little as share sales to non-Saudi investors will be limited.

So poor is the global appetite for the deal, even at the lower valuation, Saudi Aramco decided at the last minute against marketing the IPO in the U.S., Canada and Japan - three markets traditionally seen as a must-go destination for any big Wall Street deal. "Cornerstone investors, sovereign wealth funds and local investors could still provide enough support to support the IPO given some of the strategic interests".

Saudi Arabia will be offering up to 0.5 percent in Aramco to retail investors, while in total the Kingdom plans to list 1.5 percent of the world's biggest oil company on the Saudi stock exchange, the Tadawul.

To prepare for this, the Saudi Arabian Monetary Authority will allow smaller retail investors to borrow twice their cash investment and double normal leverage limits the regulator allows for IPOs, according to sources with Bloomberg.

"Aramco's price range takes into account some uncertainties that weren't fully absorbed when the IPO was first floated", such as governance, said Jaafar Altaie, managing director of Abu Dhabi-based consultant Manaar Group. So investors have been clamoring for this IPO to happen.

The market focus on the valuation of Saudi Aramco's initial public offering is similar to Bugatti Chiron owners focusing on their vehicles' top speeds - interesting, but of little relevance. But the IPO was delayed multiple times. Originally, the company was scheduled to go public past year. Back then, Saudi officials were floating around a valuation of $10 trillion.

The Saudi government has been aiming to reduce the budget deficit by diversifying outside of oil. The crown prince has been pushing for reduced dependence on oil as part of his Vision 2030 program. As well as a lower valuation between $1.6 and $1.7 trillion, it won't be the 5% of company's capital he envisioend.

The combination of a lower valuation and a smaller stake means that there will nearly certainly be enough Saudi money to buy the shares - and perhaps guarantee reasonable post-IPO trading - but the sale will be a long way from the seismic global financial event Prince Mohammed touted in back in 2016. At the event, Nasser said that it was a "historic day" for the company.

On the 9 of November, Aramco had stated that the domestic IPO would be made to institutional investors out of the United States as per the requirements of the Rule 144A for the U.S. Securities Act and Regulation S of the United States Securities Act of 1933.

Other reports by Click Lancashire

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