Bankers Due to Deliver Crucial Aramco Valuation as Soon as Friday

      Published on Friday, 11 October , 2019      380 Views     
Bankers Due to Deliver Crucial Aramco Valuation as Soon as Friday


Saudi Arabian Oil Co.’s investment bankers could deliver, as soon as Friday, their final recommendations on the valuation of the state-owned energy giant in an initial public offering,

with the headline number expected to fall well short of the $2 trillion targeted by Saudi Arabia’s Crown Prince Mohammed bin Salman, according to people familiar with the matter.




The crown prince has indicated he wants the IPO to value Saudi Arabian Oil, or Aramco, at $2 trillion. But that target has already met some resistance from company executives working on the planned offering, who have suggested $1.5 trillion is more realistic. That valuation is gaining support among the underwriters who are tasked with drumming up investor interest for the offering, a group that includes JPMorgan Chase & Co. , Goldman Sachs Group Inc. and Morgan Stanley among others, according to people familiar with the matter.

Aramco declined to comment.

Aramco is in the final stages of preparing to list shares on the domestic Tadawul exchange, as the government pursues a key part of the crown prince’s economic-reform program. MBS, as the crown prince is known, ultimately plans to list at least 5% of Aramco, through a domestic and a later planned international listing, to raise billions of dollars to diversify Saudi Arabia’s economy from its dependence on oil.

The challenge for Aramco and MBS is settling on a valuation that attracts sufficient investor demand to ensure enough money is raised for the crown prince to fund his ambitious economic diversification plans.

The offering’s lead bank underwriters are slated to earn unusually low fees for their work, according to the people. That underscores the banks’ bet that working on the Aramco IPO will generate additional future business as a result of Saudi Arabia’s continuing diversification efforts. Typically in Europe and the U.S. IPOs can yield fees of 2.5% to as much as 7% of the proceeds raised from the issue.

It isn’t clear if MBS would pursue the IPO if Aramco couldn’t achieve a $2 trillion valuation. However, the IPO was previously delayed from its original launch date in 2018 due to questions over the valuation and venue for the international listing. At that time, valuations for the offering ranged from $1.3 trillion to $1.7 trillion, according to a person familiar with the matter.

Initially, Aramco is aiming to sell a 1% to 2% stake in an IPO this year and list the shares on the Tadawul exchange. It is aiming to complete the issue before the U.S. Thanksgiving holiday on Nov. 28, according to some of the people familiar with the matter. Ahead of that target, Aramco officials and advisers would spend two weeks educating potential investors on the company starting by the end of October, followed by a two-week book-building process, according to one of the people familiar with the matter.

Achieving an acceptable valuation for MBS isn’t the only potential stumbling block that could get in the way of Aramco’s planned IPO. The company could face challenges from at least some investors who are choosing to avoid fossil fuel investments in favor of investments deemed more environmentally friendly. That’s the reason Singapore’s Temasek Holdings has decided against investing in the IPO, according to another person familiar with the matter.

Aramco has also received a lukewarm response from the Abu Dhabi Investment Authority, according to another person familiar with the matter. ADIA declined to comment.

Further, some large investors aren’t yet set up to trade in Saudi Arabia, which could also undermine potential interest in the offering, one of the people familiar with the matter said.

That said, the Saudi government is expected to require some members of the country’s elite, who had been arrested for alleged bribery in 2017 and held in Riyadh’s Ritz-Carlton luxury hotel until late last year and in some cases into early 2019, to buy “large stakes” of the offering to help ensure the IPO’s success, according to some of the people.



Sarah McFarlane and P.R. Venkat contributed to this article.

Keywords:
Category Government | 2019/10/11 latest update at 8:45 PM
Source : Wall Street Journal | Photocredit : Google
381 Views
Comments Add comment



Gulf Media

Related Articles

The editorial staff of Saudi Arabia Today would like to give all of its readers from Gulf and Saudi Arabia and the whole world the opportunity to participate actively in the development of the website! If you have something interesting, fun, scandalous - just something worth to be seen from more people. Capture it and share it in the Saudi Arabia Today with a short text.

Do you have information you want to reach our readers?

Send article/s

You can subscribe to our Facebook, Twitter and Google pages or use our RSS feed channel to always read the most important news about Saudi Arabia, the Gulf and the world.


Sponsored Publications