Saudi Arabia is aiming for a valuation of up to $1.71 trillion from the initial public offering (IPO) of the energy giant Aramco in what could be the world’s biggest IPO, falling short of the initial target of $2 trillion set by Crown Prince Mohammed bin Salman’s.
The long-awaited IPO is part of the kingdom’s plans to move away from oil dependency.
Aramco said that it will sell 1.5 percent of the company in a blockbuster initial public offering worth $24-25.6 billion, scaling down Saudi Arabia’s original plan to sell up to five percent of the firm.
Up to 0.5% of the shares are to be sold to individual investors, who may sign up for the IPO until November 28. The remaining 1% are being offered to institutional investors available until December 4.
“The base offer size will be 1.5 percent of the company’s outstanding shares,” the state-owned energy giant said as it began taking bids from investors in a price range of 30-32 Saudi riyals per share ($8-8.5).
The much-delayed offering, a cornerstone of de facto ruler Prince Mohammed’s ambitious plan to diversify the oil-reliant economy, could exceed the world’s biggest listing — the $25 billion float of Chinese retail giant Alibaba in 2014.
The launch has suffered delays since the idea was first announced in 2016, with Prince Mohammed’s desired valuation of $2 trillion seeing skepticism from investors and analysts.
“(The) first impression is that (the) price is a sensible compromise and that it will sell,” Tarek Fadlallah, chief executive officer of the Middle East unit of Nomura Asset Management, said on Twitter.
If priced at the top end of the range, it could eclipse Alibaba to become the world’s biggest IPO, Fadlallah added.
Saudi Arabia is pulling out all the stops to ensure the success of the IPO, a crucial part of Prince Mohammed’s plan to wean the economy away from oil by pumping funds into megaprojects and non-energy industries.
“If subsequently effectively deployed, the funds raised could be used to support longer-term economic growth in Saudi Arabia,” said S&P Global Ratings.
We understand that the bulk of the funds raised will go to the government or the Public Investment Fund.
The government has reportedly pressed wealthy Saudi business families and institutions to invest, and many nationalists have labeled it a patriotic duty.
Many Saudis are looking for lenders and are trying to sell personal assets to raise money for investing in the share sale. Last year Aramco posted $111.1 billion in net profit. In the first nine months of this year, its net profit dropped 18 percent compared with the corresponding period of 2018, to $68.2 billion.