Saudi Arabia may only sell 2% of Aramco. It could still be the biggest IPO on record

CNN Finance 2 months ago
Saudi Aramco CEO Amin Nasser says oil production is almost fully recovered following an attack on a facility in Saudi Arabia.

Delayed by a year, Saudi Arabia now looks ready to push ahead with a partial privatization of its giant oil company in the coming weeks. The deal under discussion is smaller than previously touted, but could still turn out to be the biggest IPO on record.

Though official details have not been announced, analysts expect that Saudi Arabia will list between 1% and 2% of Saudi Aramco on the Tadawul exchange in Riyadh by the end of the year. An international listing, possibly in Tokyo, could follow in 2020 or 2021.

Splitting the IPO into phases is a departure from the original plan for a market debut in 2018. Then, Saudi Arabia was expected to float 5% of the company, raising as much as $100 billion. It was looking at international markets such as New York or London, as well as Riyadh.

    "We're talking about a much smaller stake sold in the Saudi market," said Ayham Kamel, the Middle East and North Africa practice head at Eurasia Group, a political risk consultancy.

    Estimates of how much the flotation will raise still vary widely. Crown Prince Mohammed bin Salman reportedly wants the deal to value Aramco at $2 trillion; analysts peg it no higher than $1.5 trillion. Selling 1% at the bottom of that range would fetch $15 billion, while selling 2% at the top could generate $40 billion, eclipsing the record $25 billion raised by Alibaba (BABA) in 2014.

    Saudi Aramco declined to comment. CEO Amin Nasser, who did not provide fresh details when speaking at an oil industry conference in London on Wednesday, told CNN's John Defterios last month that the timing of the IPO and the venue "is a government decision."

    'Accelerated timeline'

    Aramco has indicated in recent weeks that it's moving full steam ahead on an initial public offering, reviving a deal that had been shelved due to potential legal complications in the United States and doubts about the valuation sought by bin Salman.

    The company announced last week that it plans to pay out an annual dividend of $75 billion between 2020 and 2024. It also amended the structure for royalties paid out to the Saudi government. These moves are an attempt to drum up excitement among investors, Kamel said.

    Last month, former energy minister Khalid Al-Falih was replaced as Aramco chairman by Yasir Al Rumayyan, who heads up Saudi Arabia's Public Investment Fund and is seen as more sympathetic to bin Salman's ambitions for the IPO.

    Aramco is the world's most profitable company, with vast oil reserves and massive daily output. It holds a monopoly in Saudi Arabia, the world's largest exporter of crude oil.

    Attacks on Saudi oil facilities in mid-September have not derailed the IPO process. In fact, they've likely hardened bin Salman's resolve to get some kind of listing done soon.

    "This is why we're seeing an accelerated timeline," said Kamel, who thinks the official announcement could be timed to coincide with a big investment conference in Riyadh later this month.

    But there are risks to a smaller domestic listing. There's still plenty of skepticism about valuing the company close to $2 trillion. For comparison, Microsoft (MSFT), the world's most valuable public company, is valued close to $1 trillion.

    It's also not clear to what extent investors will demand to be compensated for continued geopolitical risk.

    "The successful attack surely forces a reappraisal [of] the risk to, and the cost of, preserving the physical security of these assets," said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer, an investment bank focused on developing markets.

    For investors, the consistency of Saudi output will likely outweigh geopolitical fears, Tellimer's Malik said. And it doesn't hurt that the Saudi government is reportedly courting powerful anchor investors, including wealthy Gulf families, domestic pension funds and regional sovereign wealth funds.

    The big issue in a domestic listing is that even a 1% stake of Aramco could overwhelm the country's benchmark exchange.

    "One risk of a domestic listing is that it might push down the valuation of other listed stocks as available liquidity is limited," said Steffen Hertog, an expert on Gulf politics at the London School of Economics.

    Going international

    For bin Salman, a successful domestic listing would still be a win, helping to fund his Vision 2030 plan that aims to wean Saudi Arabia off oil and develop other areas of the economy. But it's the prospective international debut that drives the most excitement among investors. And that type of listing looks much more difficult.

    Saudi Arabia has taken steps to address concerns about transparency as part of its effort to court global investors. Details about the company's finances were released ahead of a bond sale earlier this year, and Aramco held its first earnings call this past summer.

    "The firm has gone a long way in disclosing its assets, cost and revenue structure," said Hertog. "There needs to be more disclosure for an IPO, but they have been preparing for this for more than two years."

    The valuation question, however, is likely to keep cropping up.

    "A lot of foreign investors still think $2 trillion could look a bit pricy," said Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB).

    Other risks include the potential for reduced oil consumption due to concerns about climate change, and questions about the leadership of bin Salman. The crown prince's standing on the international stage has suffered since the murder last year of journalist Jamal Khashoggi inside the Saudi consulate in Istanbul.

    At the same time, slowing global economic growth has injected significant volatility into markets, muddying the outlook into 2020 and 2021, when an international flotation would likely take place.

      But if Aramco can get the pricing right, it should be able to withstand the shaky environment, according to ADCB's Malik.

      "Aramco's fundamentals even in a lower oil price environment are very, very strong," she said. "They've got strong cash flow [and] the dividend remains very attractive."

      Source link
      Read also:
      Business Insider › Finance › 13 minutes ago
      Saudi Aramco's $1.88 trillion IPO could end up weakening Saudi Arabia, rather than strengthen or invigorating it. Attacks on Saudi oil facilities this year showed its vulnerability to military strike. It will be even more sensitive now that Aramco has...
      Daily Mail Online › 1 month ago
      Saudi Arabia announced it formally began an initial public offering of a sliver of its oil giant Saudi Aramco on Sunday. Analysts say the stock market debut could be the world's biggest IPO.
      RT › Finance › 5 days ago
      Saudi Arabia’s state-owned oil company Saudi Aramco has just pulled off the biggest initial public offering (IPO) in history, raising $25.6 billion. The IPO, however, fell short of the Saudi Crown Prince’s $2 trillion valuation. Read Full Article...
      Business Insider › Finance › 1 day ago
      Saudi Arabian government institutions spent nearly $2.3 billion on Saudi Aramco's record-breaking IPO, Bloomberg reported Tuesday. That reliance on local funding sources contrasts with Aramco's expressed desire to get more economically diverse. The...
      Business Insider › Finance › 2 months ago
      Saudi Aramco is moving forward with its plans for an IPO after drone attacks crippled its oil production, and new details suggest some shares will be offered before 2020. The state-owned oil company plans to sell 1% to 2% of its shares on Saudi Arabia...
      Sputnik International › Opinions › 1 month ago
      Saudi Arabia’s oil giant Aramco is set to go public after multiple delays. The initial public offering, or IPO, of the world’s most profitable company, is expected to list on the Saudi stock exchange after state regulators approved the IPO request...
      RT › Finance › 2 months ago
      Saudi Arabia hopes state oil company Aramco, which suffered from last week’s drone attack, will be valued at 2 trillion dollars in its IPO listing. This is most likely beyond Aramco’s reach, an expert tells Boom Bust. Read Full Article at
      Business Insider › Finance › 1 month ago
      Saudi Arabia, the de facto leader of OPEC, is pushing other nations in the cartel to cut oil supplies to help Saudi Aramco's IPO, according to the Wall Street Journal. The Journal said that Nigeria already agreed to the cut and it would be pushing...
      CNBC › 1 month ago
      Saudi Arabia has officially launched its initial public offering (IPO) for its state-owned oil company Saudi Aramco.
      Reuters › Finance › 5 days ago
      State-owned oil giant Saudi Aramco has priced its initial public offering (IPO) at the top of its indicative range, the company said on Thursday, making it the world's biggest flotation, above Alibaba's $25 billion listing in 2014.
      Sign In

      Sign in to follow sources and tags you love, and get personalized stories.

      Continue with Google