Published: Fri, December 06, 2019
Markets | By Otis Pena

Saudi Aramco prices for biggest ever IPO

Saudi Aramco prices for biggest ever IPO

The energy giant had been offering 1.5 percent, or three billion, of the company's shares on the Saudi Stock Exchange (Tadawul) at an indicative price range of SR30-32 ($8-$8.53).

Saudi Arabia relied on domestic and regional investors to sell a 1.5% stake after lukewarm interest from overseas, even at the reduced valuation of US$1.7 trillion.

The massive stock exchange debut would fund Crown Prince Mohammed bin Salman's Vision 2030 plan to wean the kingdom off oil and develop other sectors of its economy, while signaling to multinational companies and foreign investors that Saudi Arabia was open for business.

Largely driven by domestic and regional individual and institutional investor support, demand for the offering was strong as Aramco had already attracted more than $60 billion of orders as of Tuesday.

Aramco's advisors said they may partly or fully exercise a 15 per cent "greenshoe" option, allowing it to increase the size of the deal to a maximum of $US29.4 billion.

The bookbuilding process for allocating shares to institutional buyers - typically asset managers, insurers or pension funds - began on November 17 and investors have until 1700 Saudi time on December 4 to place orders.

Saudi Aramco is expected to price its initial public offering Thursday at the high end of the targeted range to give the oil giant a total value of $1.7 trillion in what would be the world's biggest-ever IPO, according to people familiar with the matter.

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.

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Climate change concerns, political risk and a lack of corporate transparency put foreign investors off the offering, forcing the kingdom to ditch ambitions to raise as much as $100 billion via an global and domestic listing of a 5% stake.

Instead, it focused its marketing for the share sale on Saudi investors and wealthy Gulf Arab allies. Global banks working on the deal were sidelined after Saudi Arabia chose to focus on selling the shares to local and regional investors.

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.

Alibaba's listing in Hong Kong this month had bids for 40 times the number of shares on offer.

The official price announcement is expected later Thursday on the offering covering just 1.5% of Aramco's capital.

Saudi citizens were offered 0.5% of the company or about a third of the offering, an unprecedented retail offering compared with previous Saudi IPOs.

The company, which plans to pay a base dividend of $75 billion in 2020, reported a profit of $111.1 billion in 2018 and $46.9 billion in the first half of 2019. It's been derailed by problems at home, including the backlash against his purge of the elite, and overseas by the outrage over the murder of Washington Post columnist Jamal Khashoggi and the war in Yemen.

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