Saudi Aramco raises $25.6 billion in biggest-ever IPO

SAUDI

Saudi Aramco on Thursday priced its long-awaited IPO at the high end of the target range, raising $25.6 billion and giving the energy giant a valuation of $1.7 trillion in the world’s biggest stock sale. Aramco priced its initial public offering at 32 riyals ($8.53) per share, surpassing the $25 billion raised by Chinese retail giant Alibaba when it debuted on Wall Street in 2014.

The sale of
1.5 percent of Aramco was oversubscribed 4.65 times, the energy giant said in a
statement, but the scaled-down IPO is still a far cry from the blockbuster
originally planned by Crown Prince Mohammed bin Salman. The much-delayed stock
sale, first announced in 2016, was initially expected to raise as much as $100
billion from the sale of up to five percent of the company.

The IPO is
the bedrock of Prince Mohammed’s ambitious strategy to overhaul the oil-reliant
economy by pumping funds into non-energy industries. But sceptics say the IPO’s
proceeds would barely cover the kingdom’s budget deficit for a year. The market
launch puts the oil behemoth’s value at $1.7 trillion, far ahead of other firms
in the trillion-dollar club: Apple ($1.2 trillion), Microsoft and Alibaba ($1.1
trillion).

However, it
fell short of the $2 trillion mark that de facto ruler Prince Mohammed was
aiming for. Aramco will begin trading three billion shares on the country’s
Tadawul stock exchange December 12 at a starting price of 32 riyals, two
sources told AFP. That price is at the top of the range set last month, even
though the banks advising the company called on Saudi authorities to be
cautious to avoid volatile price swings in the first days of trading.

The IPO is
heavily focused on Saudi and other Gulf traders as international investors have
remained sceptical about the secretive company’s targeted valuation, as well as
harbouring doubts over its transparency and governance practices. There are
also concerns about dipping profitability as Aramco has acknowledged that
climate change concerns could reduce demand for hydrocarbons and see global oil
demand peak within the next 20 years.

The IPO
also comes with oil prices under pressure due to a sluggish global economy hit
by the US-China trade war and record output by non-OPEC crude exporters. But
Aramco, a cash cow that turned the kingdom into the Arab world’s biggest
economy, appears to hold enormous appeal for local retail investors, some of
whom have incurred debts to fund share purchases. Last week, the company
announced that retail subscriptions had been oversubscribed.

The
government used a series of initiatives to encourage Saudis to buy a stake in
the kingdom’s crown jewel, including offers of easy bank loans and nationalist
rhetoric portraying the investment a patriotic duty. Aramco has also provided
local investors with promises of higher dividends and the opportunity to obtain
additional free shares if they hold their initial shares for some time. It
pledged to pay $75 billion in dividends in 2020.

Some of the
wealthiest families and individuals in Saudi Arabia have reportedly been
obliged to invest. They are rumoured to include billionaire prince Al-Waleed
bin Talal, who was among the businessmen locked up in Riyadh’s Ritz-Carlton
Hotel during an “anti-corruption” crackdown in 2017. Aramco’s plan to raise
additional funds by selling further shares on a major international market are
currently on hold. The company is considered the pillar of the kingdom’s
economic and social stability and produces about 10 percent of the world’s oil,
so investors are betting on a long-term rise in oil prices.

That could be helped by a new agreement to cut production among the 14
member countries of the Organization of the Petroleum Exporting Countries
(OPEC) along with other major crude exporters. OPEC was conducting delicate
discussions on Thursday in Vienna, set to continue Friday, regarding the
production agreement and any further cuts.

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