The Saudi Aramco IPO valuation could bring in about $25bn to fund the Saudi Vision 2030 roadmap for diversifying the kingdom's economy away from oil reserves
Saudi Aramco is worth between $1.6tn and $1.7tn, according to the preliminary valuation of its initial public offering (IPO).
While the price range set for the Saudi Arabia state oil company puts it below the $2tn expected by the kingdom’s prince, it remains on track to become the world’s biggest IPO.
The company, which announced earlier this month it intended to list its shares on the Saudi Stock Exchange, published an updated prospectus yesterday (Sunday 17 November), stating it wishes to sell three billion shares – or 1.5% – for between 30 riyals ($8) and 32 riyals ($8.53).
This would value the IPO at up to 96bn riyals ($25.6bn), giving it a chance to beat Chinese e-commerce giant Alibaba’s record $25bn debut on the New York Stock Exchange in 2014.
But Saudi Aramco’s three billion shares will only be made available to Saudis and foreign institutions permitted to invest in the kingdom’s stock market, which doesn’t include the US and many other western powers.
The crown jewel in Saudi Arabia’s economy boasts unfettered access to the Gulf’s vast oil reserves, producing close to 10 million barrels of oil per day.
What are analysts saying about the Saudi Aramco IPO valuation?
Market analyst group S&P Global said the $2tn valuation was always a “pipe dream” but the will still allow Saudi Arabia to push forward ambitious economic reforms.
Crown Prince Mohammed bin Salman aims to diversify its economy and wean itself off oil reserves as part of its Saudi Vision 2030 roadmap.
In a recent analysis, S&P Global Platts Analytics said: “Efforts to grow non-oil revenues and diversify the economy are genuine, and stakes are high for several reasons: an uncertain long-term [oil] demand outlook, a large youth population energetic for reforms and opportunities, and large budget deficits.”
Saudi Aramco recorded $111bn net profit in 2018, although this fell by 18% to $68bn in the first nine months of this year – on the back of $244bn in revenue.
Some of this drop can be explained by drone attacks that disrupted production in September.
In the long term, S&P believes it will continue to hold on to profits and market share, even once oil demand plateaus in the mid-2030s, because it “has the lowest cost and least energy-intensive oil production in the world”.
But Saudi Arabia’s GDP is forecast by the International Monetary Fund to grow just 0.2% in 2019 and 2.2% in 2020.
It means the IPO is needed to prop up Saudi Arabia’s Public Investment Fund, which will deliver many of the Vision 2030 projects.
An S&P note added: “If subsequently effectively deployed, the funds raised could be used to support longer-term economic growth in Saudi Arabia.”
What happens next with the Saudi Aramco IPO?
The Saudi Aramco IPO is restricted to Saudis and foreign institutions permitted to invest in Tadawul, the domestic stock exchange, including nationals in the Gulf Cooperation Council region.
Individual investors have until 28 November to sign up for the IPO, while institutional investors can subscribe until 4 December.
The final offer price will be announced on 5 December, and trading in the shares begins on 11 December.