Saudi Aramco launched its long-awaited initial public offering on Sunday after delays triggered by doubts over the ability of the world’s most profitable company to secure the $2tn valuation coveted by the oil-rich kingdom’s Crown Prince Mohammed bin Salman.
The listing of the state energy firm is the centrepiece of Prince Mohammed’s ambitious plan to overhaul Saudi Arabia’s oil-addicted economy and would mark a milestone in his aggressive drive to reshape the conservative kingdom.
It is expected to be the world’s largest IPO with Riyadh hoping to raise as much as $60bn. However, the process has been dogged by questions over the valuation of Saudi Aramco, with bankers and analysts saying $1.2tn to $1.5tn is more realistic.
The company said the final offer price and the number of shares would be determined at the end of the book building period.
Yasir al-Rumayyan, Saudi Aramco’s chairman, said: “Today marks a significant milestone in the history of the company and important progress towards delivering Saudi Vision 2030 [Prince Mohammed’s reform plan], the kingdom’s blueprint for sustained economic diversification and growth.”
Mr Rumayyan said Aramco’s valuation would be determined in the roadshow and the bookbuilding exercise. Asked about a potential international listing, he said: “currently just the Tadawul”, the Saudi Arabian stock exchange.
Saudi Aramco’s formal announcement of its intention to float is the closest the government has come to finalising the listing. The company did not provide details of the timetable for the listing, but the shares are expected to begin trading in December, with the prospectus issued on November 9.
Amin Nasser, Aramco’s chief executive, said: “Our mission is to provide our shareholders with long-term value creation through crude oil price cycles by maintaining our pre-eminence in oil and gas production.”
Alibaba, the Chinese e-commerce company, launched the globe’s largest IPO when it raised $25bn in 2014. Prince Mohammed, the kingdom’s de facto ruler, first disclosed his intention to partially privatise Saudi Aramco three years ago, and Riyadh hired advisers to prepare for a listing as early as 2018. Saudi Aramco is expected to sell up to 3 per cent of the company, which made $111bn in net income last year.
However, two people briefed on the process said despite the formal announcement of an intention to float, Saudi Aramco could still pull the listing at a later stage depending on the response from investors.
The IPO stalled last year amid concerns about the valuation and after the royal court ordered Saudi Aramco to buy a 70 per cent stake in Sabic, the kingdom’s biggest petrochemicals company, from the Public Investment Fund, the country’s sovereign wealth fund.
Riyadh revived the process after company’s debut $12bn bond in April was massively oversubscribed. And it pushed head with the planned listing despite missile and drone attacks, blamed on Iran, in September that struck the heart of Saudi Aramco’s infrastructure, temporarily knocking out half of the kingdom’s crude production.
However, Riyadh postponed the launch of the IPO again last month, although it continued to pressure advisers to ensure the listing went ahead this year with Prince Mohammed keen to prove his economic reforms are on track, analysts say.
Asked about the timing of the IPO after the delays, Mr Rumayyan said: “The question could be: Why not now?”
“That’s what I’ve been asking myself . . . this is the right time for us coming to a juncture where we want to take Aramco to be a public company to have more disclosure,” Mr Rumayyan said. “We want to share the Aramco shares with the citizens of Saudi Arabia, we want to get financial investors from all over the world.”
Bankers say there is enthusiasm among Saudis for the listing, with domestic investors expected to comprise the bulk of the offering. Local banks are expected to lend heavily to Saudis to enable them to buy shares.
Wealthy merchant families — many of whom were ensnared in Prince Mohammed’s corruption crackdown in 2017 that saw some 300 tycoons and princes detained — have been pressured to invest in the company to ensure the success of the listing.
Foreign investors, meanwhile, have been more sceptical about the kingdom’s valuation expectations. They cite governance issues and state interference in the corporate strategy of the company — Saudi Aramco’s $69bn acquisition of Sabic was in part motivated by Riyadh’s need to raise cash for the PIF. The proceeds of the IPO will go to the sovereign wealth fund, which faces huge funding commitments as it oversees a series of megaprojects in the kingdom.
The attack in September also raised concerns about Saudi Aramco’s ability to protect its energy assets in the world’s top oil exporter.
A big test for afloat will be the level of foreign demand, bankers say. “It’s important to have global demand for the IPO,” said a senior banker. “I’m confident there will be ample local retail participation because it’s the crown jewels and there’s a sense of national pride in Aramco.”
Riyadh has also approached sovereign wealth funds in the Middle East and elsewhere to invest in the IPO. Most of the world’s leading banks, including JPMorgan, Goldman Sachs, Morgan Stanley and Citigroup, have been working on the listing.
Several people close to Saudi Aramco lay a large part of the blame for the company’s struggle to convince investors of the $2tn valuation on the advisers and bankers working on the IPO. The people say the advisers have failed to sufficiently challenge Prince Mohammed’s expectations.
In a bid to ensure Saudi Aramco secures the highest valuation possible, the company has announced an annual dividend of $75bn, changed royalty payments to the government and scaled back long-term investment plans.
But if Saudi Arabia insists on the $2tn valuation, it would imply investors would receive a dividend yield that is lower than that for international rivals such as Royal Dutch Shell or ExxonMobil.
A listing this year would come as global energy companies are under pressure, trying to navigate an environment of lower oil and gas prices, weaker demand and lower chemicals margins.
It also comes as the world’s energy majors are under pressure from investors to take greater responsibility for their role in causing climate change. Saudi Aramco’s production costs are among the cheapest in the world, which it believes will hold it in good standing.
