Saudi Arabia put a preliminary valuation on its state-owned oil giant Aramco of between $1.6 trillion and $1.71 trillion, short of the $2 trillion target set by Crown Prince Mohammed bin Salman in 2016.
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The company would raise $24 billion if the deal prices at the lower end – just shy of the $25 billion raised by Alibaba Group Holding Ltd – currently the world’s largest IPO. With one third of the deal reserved for Saudi retail investors, Aramco will rely heavily on the local market.
It’s cut the tax rate for Aramco and is promising a hefty dividend. The kingdom has also negotiated commitments from its wealthiest families to invest in the offering as many international money managers seem ready to pass.
“We expect a decent cover in the range of 2x-3x over-subscription for this size,” said Aarthi Chandrasekaran, a portfolio manager in Abu Dhabi at Shuaa Capital. “From a retail perspective, assured bonus shares and fixed dividend will support the stock price in the secondary market, not to forget the passive funds flow that follows in few weeks after the listing.”
Still, valuation has been a sticking point ever since the crown prince first floated the idea in 2016. Aramco has faced a delicate balance by pushing the valuation as close as possible to $2 trillion — a figure that’s been met with scepticism from many investors — while making sure it’s attractive to potential Saudi buyers.
Among those considering sizable purchases are the Olayan family and Prince Alwaleed bin Talal, the billionaire investor who was held for several weeks in Riyadh’s Ritz-Carlton Hotel during the 2017 crackdown on corruption.
Proceeds will be transferred to the sovereign wealth fund, which has been making a number of a bold investments, ploughing $45 billion into SoftBank Corp.’s Vision Fund, taking a $3.5 billion stake in Uber Technologies Inc. and planning a $500 billion futuristic city.
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