Aramco Sees Nearly Enough Early Orders to Pull Off IPO

Daniel Fowler
November 22, 2019

Aramco is also courting investors in China and Russian Federation. They've been negotiating commitments from the billionaire Olayan family, who own a major stake in Credit Suisse Group, and Saudi Prince Alwaleed Bin Talal, Bloomberg News reported earlier this month.

The army of banks working on Saudi Aramco's listing will earn combined fees of US$90 million (RM374 million) or less, according to three sources involved in the process, after the oil giant scaled back a deal initially viewed as a golden opportunity for high finance.

Saudi Arabia is doubling the leverage limits for loans that banks will extend to domestic retail investors who want to buy shares in the Kingdom's oil giant Aramco in what would be the world's largest initial public offering (IPO) ever.

"There's been very limited appetite from global investors", added Energy Aspects founding partner Amrita Sen via Foreign Policy.

Bankers had anticipated spending much of this week globetrotting with Aramco management round meetings with investors - a presentation had been scheduled for Wednesday at London's Savoy Hotel and on Thursday at the St Regis in NY according to invitations seen by Reuters.

So poor is the worldwide 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. And the company made a decision to focus on local investors.

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There are also concerns about the conflict between Saudi Arabia and Iran.

The price range for the 3 billion shares is about 30 Saudi riyals to 32 Saudi riyals - which is about $8-$8.50. And the IPO date is expected to be December 11.

While the new valuation means that Saudi Aramco will overtake Apple the world's biggest public company, the plans are a long way from Prince Mohammed's initial aims: a local and worldwide listing to raise as much as $100 billion for the kingdom's sovereign wealth fund. As such, the IPO is set to be dominated by regional investors, especially those looking to deepen ties with the kingdom.

The first thing to note is that the company has committed to paying an annual dividend of at least $75 billion for the next five years. Back then, Saudi officials were floating around a valuation of $10 trillion. This brings the overall evaluation of the company to about $1.6 trillion, which is bigger than the Canadian economy. The crown prince has been pushing for reduced dependence on oil as part of his Vision 2030 program.

"Aramco will have a sizable weight of almost 10% in the Saudi local market index based the current price range and stake, and Saudi Arabia's weight in the MSCI Emerging Markets index will also increase as a result", said Cefaratti.

At a valuation of well over $1 trillion, Aramco will surpass Apple as the world's biggest public company. Aramco Chief Executive Officer Amin Nasser presented the final phase of the IPO for hundreds of local fund managers in Riyadh this past weekend. The Public Investment Fund is known for making aggressive risks like putting $45 billion into the SoftBank Vision Fund. Instead of the planned approach to American investors, using what lawyers and bankers know as the 144A rule of the U.S. Securities Act, Aramco decided on Sunday the tepid interest meant it wasn't worth the trouble.

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