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Saudi Aramco finally fires starting gun on stock market debut

posted onNovember 4, 2019

Saudi Aramco announced its intention to proceed with its initial public offering (IPO) on the Main Market of Tadawul, the domestic bourse. Saudi Arabia’s Capital Market Authority approved the state-owned oil giant’s application for the listing on Sunday (Nov.3). 

Crown Prince Mohammed bin Salman, who is the country’s de facto ruler, first announced plans to take the company public in 2016. The IPO was delayed several times reportedly due to his dissatisfaction with the valuation of the Dhahran-headquarted firm, which fell short of the hoped for $2 trillion. 

Business sources say Aramco could offer 1 percent to 2 percent of its shares on the Riyadh stock exchange, raising as much as $20bn-$40bn. 

The IPO prospectus is expected to be announced on November 9, Aramco Chief Executive Amin Nasser told a media conference. The company will determine the IPO launch price after registering interest from investors.

The listing announcement had been expected on October 20 but was delayed after advisers said they needed more time to lock in cornerstone investors, three sources told Reuters.

The company had initially been expected to sell a total of five per cent on two exchanges, with a first listing of two per cent on the Tadawul followed by a three per cent listing on an foreign exchange. 

However, Aramco made no mention Sunday of a foreign listing but it did say that the Riyadh offering was open to institutional investors as well as Saudi individuals, foreigners resident in the kingdom and other Gulf citizens. 

Trading is expected to begin next month, although the company did not specify a date and offered few other specifics. 

Much of the proceeds from the offering are not likely to flow to Aramco’s operations but into the Public Investment Fund, the sovereign wealth fund of Saudi Arabia, a vehicle for shifting the Kingdom's economy from its reliance on oil.

CEO Aramco

(Saudi Aramco Chief Executive Amin Nasser)

On Sunday, Aramco which only began releasing interim financial results recently, said it had earned $68 billion for the year through September.

Revenues and other income related to sales for the same period amounted to $244bn. Its 2018 net profit was $111.1 billion, almost twice Apple’s profit and many times the earnings of Exxon Mobil, the largest listed oil company, and Royal Dutch Shell. Apple is the world's largest company by value currently.

Aramco hired nine banks as joint global coordinators to lead the IPO, including JPMorgan, Morgan Stanley and Saudi Arabia's National Commercial Bank. It added a number of banks as book-runners.

Saudi Aramco is worth $1.2 trillion, according to analysis from Bloomberg. Goldman Sachs Group Inc. told investors Aramco is worth between $1.6 trillion and $2.3 trillion. Bank of America had the bottom of its range at just $1.2 trillion. BNP gave an estimate of $1.42 trillion. How much Aramco is really worth will be determined by the market.

UPDATE 18/11/2019

Saudi Arabia set a preliminary valuation of Aramco at up to $1.7 trillion. In a press release published on Sunday morning (Nov. 17), the Aramco said it would be selling a 1.5% stake in the company, or approximately 3 billion shares, at an indicative price range between 30 Saudi riyals ($8.00) to 32 riyals per share.

UPDATE 04/12/2019

Aramco has seen institutional investors put in 189.04 billion riyals ($50.4 billion) worth of bids for its initial public offering, Reuters reported. The bookbuilding process for allocating shares to institutional investors such as pension funds, money managers or insurance companies began on Nov. 17.

Bidding is set to close on Wednesday (Dec. 4) 1700 Saudi time. Subscriptions for non-professional investors (so-called "retail" investors) which concluded last week, reached $12.6 billion with almost five million subscribers, advisers said.

The economic jewel of Saudi Arabia will announce the final offer price of the IPO on Dec. 5. 

Despite a nationwide advertising blitz and being oversubscribed, the level of interest is reportedly lower than for other emerging market IPOs. 

UPDATE 05/12/2019

Saudi Arabia made IPO history on Thursday (Dec. 5), raising $25.6 billion by selling shares in Saudi Aramco. The giant state-owned oil monopoly sold 3 billion shares at 32 riyals ($8.53) each-the top of its indicative range - in the world’s biggest initial public offering. 

Institutions and individual investors bid a total of $119 billion, applying for 4.65 times the 3 billion shares on offer. Samba Capital, one of Aramco’s advisors, said in a statement that 10.5% of the offers came from international investors, while most were from Saudi funds and companies. 

Foreign investors have remained skeptical about the company’s targeted valuation, as well as harbouring doubts over its transparency and governance practices.

The IPO gives Saudi Aramco a market value of $1.7 trillion, which is short of the Crown Prince Mohammed bin Salman’s initial valuation of $2 trillion but is surpassing Apple’s $1.16 trillion. 

Institutions must pay for their shares by Dec. 8 and the Tadawul, Riyadh's stock exchange, will announce later when the shares will start trading. 

UPDATE 11/12/2019

aramco share price

Shares of Aramco jumped 10% in initial trading on the Saudi Tadawul on Wednesday (Dec. 11) to a price of 35.2 riyal each, up from the 32 riyal float price. That values the entire company at $1.88 trillion, and makes it the largest listed company in the world, ahead of Apple and Microsoft.

But the $1.88 trillion valuation remains $120 billion below the $2 trillion valuation initially hoped for by the Saudi government. 

Index providers MSCI, S&P Dow Jones and FTSE Russell have all said they will fast-track the inclusion of Aramco shares into their indices. 

Aramco's offering in Tadawul makes the Saudi exchange the world's ninth biggest stock market by value of listed companies.

Investing in Aramco is a bet on the price of oil. Would-be investors need to bear in mind that commodities aren’t for the faint-hearted as they can endure very significant price swings. Growth in global demand for crude is expected to slow from 2025.