Saudi Aramco valuation drops below $ 2 trillion
The value of Saudi Arabia’s state-owned oil giant has fallen below the $2tn target set by Crown Prince Mohammed bin Salman after a tepid response from international investors to its stock market flotation.
Saudi Aramco will sell up to 1.5% of the world’s most profitable company at between 30 riyal and 32 riyal a share (around 600-610p per share) through its market debut, it announced on Sunday. This would value the company at between $1.6tn and $1.7tn.
The listing on Riyadh’s Tadawul exchange is expected early next month and aims to raise between $24bn-$25.6bn (£30.1bn-£33bn) from investors in the Middle East to help reform the Saudi economy.
Aramco will reveal the final price of its shares, and its valuation, by early next month although has yet to announce a date when its shares will begin to trade.
The IPO was initially expected to be the largest market debut of any company, offering up to 5% of the company on both the Tadawul and an exchange in one of the world’s largest financial centres.
But after a series of delays to the listing, Aramco’s IPO will offer a far smaller stake, mainly to investors in the Middle East, and may fall short of the $25bn raised by Chinese online retailer Alibaba’s record debut in 2014.
Aramco has scrapped plans to market the float to US investors in favour of a careful focus on Middle Eastern institutional investors and ultra-high net worth individuals in the region where the company is confident of support.
Around 0.5% has been earmarked for Saudi retail investors, who have been promised tax cuts and a $75bn-a-year minimum dividend. Aramco is also courting investors in China and Russia to drum up investor support.
But in meetings held with other international banks and hedge funds Aramco has reportedly faced a cooler reception, amid scepticism over its $2tn valuation. A Bloomberg poll of international money managers found the majority put Aramco’s valuation at between $1.2tn and $1.5tn.
Aramco made $68.2bn profit for the first six months of this financial year. It supplies around 13% of the world’s oil, but international investors are increasingly wary of Aramco’s exposure to geopolitical disruption.
In September, Aramco’s oil facilities came under attack in an aerial drone strike which brought a halt to almost 5% of the world’s oil supply. Investors are also concerned about the company’s close ties to the Saudi state, which has a worrying track record of human rights abuses, and its contribution to the global climate crisis.
International banks have come under fire from green groups for undermining global efforts to tackle the climate crisis by supporting the Aramco listing.
The banks hired to work on its market debut include Citigroup, Credit Suisse, Goldman Sachs, HSBC, JP Morgan, Merrill Lynch and Morgan Stanley. Saudi Arabia’s National Commercial Bank and Riyadh-based Samba Capital have also advised on the deal.