Saudi Arabia put a preliminary valuation on its state-owned oil giant Saudi Arabian Oil Co (Aramco) of between US$1.6 trillion and US$1.71 trillion, short of the US$2 trillion target set by Saudi Crown Prince Mohammad bin Salman in 2016.
Aramco is seeking as much as US$25.6 billion by selling a 1.5 percent stake. The company would raise US$24 billion if the deal prices at the lower end — just shy of the US$25 billion raised by Alibaba Group Holding Ltd (阿里巴巴), currently the world’s largest initial public offering (IPO).
With one-third of the deal reserved for Saudi retail investors, Aramco is to rely heavily on the local market.
The shares are to be offered at a price range of 30 riyals to 32 riyals per share, and Aramco would publish the final price and valuation on Dec. 5.
Saudi Arabia has been pulling out all the stops to ensure the IPO — key to the crown prince’s plans to diversify the economy — is a success. It has cut the tax rate for Aramco and is promising a hefty dividend.
The kingdom has also negotiated commitments from its wealthiest families to invest in the offering, as many international money managers seem ready to pass.
“We expect a decent cover in the range of 2x-3x oversubscription for this size,” wrote Aarthi Chandrasekaran, a portfolio manager in Abu Dhabi at Shuaa Capital.
“From a retail perspective, assured bonus shares and fixed dividend will support the stock price in the secondary market, not to forget the passive funds flow that follows in few weeks after the listing,” Chandrasekaran said.
Still, valuation has been a sticking point ever since the crown prince first floated the idea in 2016. Aramco has faced a delicate balance by pushing the valuation as close as possible to US$2 trillion — a figure that has been met with skepticism from many investors — while making sure it is attractive to potential Saudi buyers.
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