Saudi Arabia's national oil giant Aramco is eyeing the world's biggest initial public offering (IPO) with a sale of 1.5 per cent stake, though Riyadh has lowered its valuation expectation to a band of $1.6 trillion to $1.71 trillion, media reports say. Crown Prince Mohammed bin Salman had raised the expectation of $2-trillion valuation for the company when he announced the stake sale intention in 2016.
The company may just beat Chinese e-commerce giant Alibaba Group Holding's $25-billion IPO in 2014 if it secures mid-range valuation, which would help it raise about $25.6 billion, analysts say.
The valuation target will make Aramco the world's biggest public company, overtaking Apple Inc. However, it falls short of Riyadh's objective of the international listing to raise about $100 billion for the kingdom's sovereign wealth fund, according to an Economic Times report.
The company may also limit the listing to the local Tadawul bourse following a tepid response from international money managers. Plans to list the stock in the US, Canada and Japan may be shelved, the report suggests.
Foreign investors had always been sceptical of the $2-trillion target and some had suggested a valuation below $1.5 trillion
Aramco Chief Executive Officer Amin Nasser kicked off the IPO's final phase at a roadshow targeting local fund managers in Riyadh. It may move to Europe later in the week. Nasser called it "a historic day for Saudi Aramco, Tadawul and the Kingdom of Saudi Arabia". "We are excited about the transition to being a listed company," he said.
The version of the prospectus that was released to the investors did not name any cornerstone investor, although the company is reportedly in talks with funds in the Middle East, China and Russia.
Aramco hopes to tap the local wealthy families, though some of them may have suffered in Riyadh's 2017 corruption crackdown. Foreign investors had always been sceptical of the $2-trillion target and some had suggested a valuation below $1.5 trillion. They thought that would offer a return on investment close to other leading oil and gas companies like Exxon Mobil Corp and Royal Dutch Shell Plc.
The new valuation implies that Aramco, which has promised a dividend of at least $75 billion next year, will have to set the dividend yield between 4.4 per cent and 4.7 per cent against Exxon Mobil's dividend yield of just under 5 per cent and Shell's 6.4 per cent.
Assured bonus shares
Saudi Arabia has pulled all stops to make sure the IPO is a success despite a sceptical international audience. It cut the tax rate for Aramco three times, promised the world's largest dividend and offered bonus shares for retail investors who hold on to the stock
"We expect a decent cover in the range of two-to-three times over-subscription for this size," the ET report quotes Aarthi Chandrasekaran, a portfolio manager in Abu Dhabi at Shuaa Capital. "From a retail perspective, assured bonus shares and the fixed dividend will support the stock price in the secondary market."
Aramco is coming out with an IPO at a time when the global movement against climate change is targeting the petrochemical industry. Some investors could be concerned that the surge of electric vehicles could hit oil prices and the return on investment of companies like Aramco.