Saudi Aramco flotation values oil giant at $1.7tn

[Zippyjuan]

https://www.bbc.com/news/business-50450527

Saudi Arabia has placed a preliminary valuation on state oil company Aramco of between $1.6tn (£1.22tn) and $1.7tn.

The company has published an updated prospectus for its initial public offering (IPO), seeking more than $25bn for the sale of 1.5% of its shares.

That would make it potentially the world's biggest IPO, coming from the world's most profitable company

It is short of the $2tn valuation that Crown Prince Mohammed bin Salman was reportedly keen to achieve.

"The base offer size will be 1.5% of the company's outstanding shares," the state-owned energy giant said in a statement that set the price range at 30-32 Saudi riyals per share ($8-$8.5).

That could value the IPO at as much as 96bn riyals ($25.60bn) at the top end of the range.

If priced at the top end, the deal could just beat the record-breaking $25bn raised by Chinese e-commerce giant Alibaba in 2014.

Individual retail investors, as well as big institutions, will have a chance to buy shares.

Aramco had initially been expected to sell some 5% of its shares on two exchanges, with a first listing of 2% on the kingdom's Tadawul bourse, and then another 3% on an overseas exchange.

The firm says there are now no current plans for an international sale, with that long-discussed goal now seemingly being put on ice.

The crown prince is seeking to sell the shares to raise billions of dollars to diversify the Saudi economy away from oil by investing in non-energy industries.

Analysts S&P Global Ratings said the stock market debut could enable Saudi Arabia to strengthen its financial position.

"If subsequently effectively deployed, the funds raised could be used to support longer-term economic growth in Saudi Arabia," it said.

In its prospectus released last week, the company lists a variety of investment risks ranging from terrorist attacks to geopolitical tensions in a region dominated by Saudi-Iran rivalry.

The 600-page prospectus also includes the government's control over oil output as another potential risk.

After the flotation, Aramco will not list any more shares for six months, the prospectus says. Although one of the attractions for investors is the potential of high dividends, the document said Aramco has the right to change dividend policy without prior notice.

Aramco has hired a host of international banking giants including Citibank, Credit Suisse and HSBC as financial advisers to assess interest in the share sale and set a price. Based on the level of interest.

The sale of the company, first mooted four years ago, has been overshadowed by delays and criticism of corporate transparency at Saudi Arabia's crown jewel.

Aramco last year posted $111bn in net profit. In the first nine months of this year, its net profit dropped 18% to $68bn.

A fossil fuels company owned by an absolute monarchy in a volatile region are not an easy sell for many Western firms, pursuing the latest trend in investment policy of "ESG" (Environmental, Social and Governance) criteria.

Norway's sovereign wealth fund is among those to already rule themselves out from investing.

But the promise of sharing the promised annual $75bn cash dividend pot might be too good for some to miss, according to James Bevan, Chief Investment Officer at CCLA Investment Management (one of the UK's largest charity fund managers).

[oyarde]

If it was not the Sauds I would buy a few

[Swordsmyth]

Saudi Arabia’s “crown jewel” — Aramco, officially the Saudi Arabian Oil Company — announced on Sunday that it is only offering 1.5 percent of itself for sale in December, at a price far less than Crown Prince Mohammed bin Salman (MBS) had hoped for. And if things don’t meet even those minimum now greatly reduced expectations, the company could pull the offering before it goes public in December.
When first floated in 2016, MBS suggested he could sell five percent of the state-owned and controlled oil company and receive $100 billion to jump start his Vision 2030. He assumed that his “jewel” is worth $2 trillion.
Analysts looking through the 600-page prospectus that was released last week on the deal aren’t impressed, with many suggesting a much lower valuation, perhaps as low as just $1 trillion. That could turn MBS’s dream into a nightmare. If the offering goes well, he might receive $25 billion. If it doesn’t go well it might generate nothing at all, leaving behind bad press and a warning to investors to stay away from such offerings in the future.

The New American has pointed out some of the risks investors face if they provide the funds needed to pay for MBS’s dream, including the company’s recently declining profits as oil prices have dropped, a credit downgrade by Fitch Ratings following the murder of Washington Post journalist Jamal Khashoggi (which occurred on MBS’ watch), the company’s deliberate manipulation of its numbers to make the offering look better than it actually is, and the September attacks on its production facilities that cut its production suddenly and severely.
Now there’s the risk that the offering won’t take place at all.
The company’s “road show” or “book building” tour across the globe apparently hasn’t gone well according to Wall Street Journal: “International investors have so far signaled that a $1 trillion to $1.5 trillion valuation would be more reasonable [number] for them to consider investing.”
The company is undertaking a massive marketing effort to sell shares to Saudi’s citizens, with billboards touting the offering, talk-show hosts talking up the “opportunity,” and even Islamic officials “approving” the purchase of shares for the common folks. MBS himself is pressuring some of the country’s richest individuals (many of whom he investigated and temporarily incarcerated over charges of corruption) to “invest” in his company, with the clear implication that if they don’t, he could revisit their alleged illegal activities. That’s not an investment; that’s blackmail.
It’s increasingly unlikely that any of the funds raised will ever help MBS reduce his country’s near total reliance on oil for its budget. In April, the Saudis entered the bond market for the first time, raising $12 billion in the process. This was necessary to help fund the country enormous and increasing annual deficit spending. In 2018, revenues fell short of spending to the tune of $36 billion, with a similar shortfall likely this year. Next year, the country’s finance minister expects that the country’s deficit will widen to $50 billion. So, as large as the potential IPO might be (if it happens it would be the second largest in history), the proceeds will quickly be absorbed by the government to cover its excessive welfare state spending. MBS’ Vision 2030 will remain just that: a vision.
As The New American noted, the initial offering would provide the company with a measure of just how hungry investors are to holding a share of Aramco in light of a declining world economy and soft oil prices. The idea is that if the offering goes well, a second, much-larger offering would come, reflecting the initial offering’s price. But money managers were leery that the price of such a small initial offering could be manipulated to make it appear that the company is worth more than it is.
Accordingly Aramco has announced that there won’t be a second offering.
A key giveaway is that, buried deep inside the 600-page prospectus that MBS hopes few will read, is this nugget:
The government may direct the company to undertake projects or provided assistance for initiatives outside [of Aramco’s] core business, which may or may not be consistent with the company’s immediate commercial objectives or profit maximization.
One doesn’t have to read Arabic to conclude that the government (which presently owns 100 percent of Aramco) considers the oil company its own private piggy bank and may just decide that it has better uses for the $25 billion that might come from the IPO than investing it in real estate projects, tourism centers, or manufacturing facilities. It may just decide to use the money to fund part of its ongoing deficits.

More at: https://www.thenewamerican.com/tech/...disappointment

[r3volution 3.0]

I wish the Crown Prince good luck in his attempt to liberalize the Saudi economy.

However, we're sitting near the top of the global stock market, so this isn't a great time for a giant IPO..

Uber, Lyft, and other cash-burning "businesses" have already separated the fools from much of their money.

The Crown Prince is at risk of pulling a Brown.

[Kilrain]

If it was not the Sauds I would buy a few

I wouldn't. If the future was bright for Aramco, they wouldn't sell any of it.

I could be totally wrong, but to me this smells like trying to unload a declining company.

[oyarde]

I wouldn't. If the future was bright for Aramco, they wouldn't sell any of it.

I could be totally wrong, but to me this smells like trying to unload a declining company.

That is possible but at eight worthless FRN's a share I would gamble with some. I do not buy from Saud .

[Zippyjuan]

I wouldn't. If the future was bright for Aramco, they wouldn't sell any of it.

I could be totally wrong, but to me this smells like trying to unload a declining company.

It is only a small part of the company currently for sale.

"The base offer size will be 1.5% of the company's outstanding shares," the state-owned energy giant said in a statement that set the price range at 30-32 Saudi riyals per share ($8-$8.5).

Aramco had initially been expected to sell some 5% of its shares on two exchanges, with a first listing of 2% on the kingdom's Tadawul bourse, and then another 3% on an overseas exchange.

The firm says there are now no current plans for an international sale, with that long-discussed goal now seemingly being put on ice.

[Kilrain]

It is only a small part of the company currently for sale.

I know. It makes sense to sell it off in small chunks, to avoid flooding the market and getting a lower price per share. That has nothing to do with my "feeling" about this whole business.

[Zippyjuan]

I know. It makes sense to sell it off in small chunks, to avoid flooding the market and getting a lower price per share. That has nothing to do with my "feeling" about this whole business.

At this rate, it will take decades to sell the whole thing if they are dumping a failing company. Usually you want to do that more quickly before people can see how it is doing.

[Kilrain]

At this rate, it will take decades to sell the whole thing if they are dumping a failing company. Usually you want to do that more quickly before people can see how it is doing.

Who said they're planning on selling the whole thing? I doubt they could even if they wanted to.

But selling off X % of a declining business is better than keeping the whole thing. And I don't think they it would be smart to sell it "more quickly", it would drive down the value per share if they dumped too much of it in one go.

Again, I could be completely wrong, but if the Saudis saw this as a future cash cow, they wouldn't need to sell any of it to diversify their holdings, they could simply use some of its proceeds to buy other assets.

[Krugminator2]

I wish the Crown Prince good luck in his attempt to liberalize the Saudi economy.

However, we're sitting near the top of the global stock market, so this isn't a great time for a giant IPO..

Uber, Lyft, and other cash-burning "businesses" have already separated the fools from much of their money.

The Crown Prince is at risk of pulling a Brown.

When markets are at high valuations that is the best time. The market made another all time high today. You want to sell when everyone else is buying. IPOs tend to peak around market peaks. Probably a reason there have been so many high profile IPOs this year (Peleton, Uber, Lyft, Smile Direct, Pinterest, Zoom, etc)

[Swordsmyth]

Saudi Aramco has withdrawn from IPO roadshows in the US and London after it's likely they don't want to disclose oil reserve totals to Western banks and regulators.

Meanwhile, it's becoming a giant circle-jerk for the Saudis, the IPO is expected to list on the Tadawul exchange, while the Saudi Arabian Monetary Authority (SAMA) is expected to double the amount it would lend out to domestic "buyers" for IPO purchases, reported Bloomberg.
Aramco set a price range Sunday for its IPO between $1.6 to $1.7 trillion, far below the $2 trillion levels the Saudi crown prince had imagined, but priced higher than most what most institutional analysts thought was possible.

Besides the US and London, the IPO roadshow was also canceled in Canada and even in major financial hubs across Europe this week.

Notably, even at this lower-than-$2 trillion valuations, it remains notably rich to analysts' expectations. According to 40% of 24 investors surveyed by Bloomberg, Aramco's value is between $1.2 trillion and $1.5 trillion.

More at: https://www.zerohedge.com/commoditie...-us-and-london

[Swordsmyth]

Saudi Arabia is doubling the leverage limits for loans that banks will extend to domestic retail investors who want to buy shares in the Kingdom’s oil giant Aramco in what would be the world’s largest initial public offering (IPO) ever.

The central bank, the Saudi Arabian Monetary Authority (SAMA), has told banks that they can lend money to retail customers at a 2-to-1 ratio for every riyal they will invest in Saudi Aramco, compared to average leverage ratio limit for loans of 1-to-1, the chief executive officer of Samba Financial Group, Rania Nashar, told the Al Arabiya news outlet.
The move from the monetary authority in Saudi Arabia is aimed at ensuring that more retail customers will buy shares in the oil giant Aramco.
Banks are also allowed to extend loans to corporate and institutional investors for buying Aramco’s shares at higher leverage ratios, depending on each corporate customer’s creditworthiness, Nashar told Al Arabiya.

More at: https://oilprice.com/Latest-Energy-N...nvestment.html

[r3volution 3.0]

When markets are at high valuations that is the best time. The market made another all time high today. You want to sell when everyone else is buying. IPOs tend to peak around market peaks. Probably a reason there have been so many high profile IPOs this year (Peleton, Uber, Lyft, Smile Direct, Pinterest, Zoom, etc)

Right, but an IPO, especially the world's first trillion+ IPO, isn't going to be easy.

Either it's going to be sold in tranches, to avoid flooding the market, and/or some bank(s) is/are going to take the risk at a big haircut.

If MBS can get Goldman (for instance) to properly underwrite this beast, by all means, sell sell sell.

But if the KSA is taking market risk, I'd be careful.

Suppose you sell tranche #1, and then the DJIA drops 25%.

P.S. An important question is whether the KSA can survive a global depression (with depressed oil prices).

If so, they might want to wait, or at least sell very carefully, and dearly.

If they can't wait, then sell right now at whatever Goldman, Morgan, etc is offering.

[MAGA2020s]

In 2019, Saudi Aramco has $20 billion loss from 3 months shut down after the cruise missile strikes