Aramco declares $1.71trn valuation in blockbuster IPO

Bloomberg

Saudi Arabia put a valuation on state-owned oil giant Aramco of between $1.6 trillion and $1.71 trillion.
Aramco will sell 1.5% of its shares on the local stock exchange, the Tadawul. At the lower end of the price range, the offer would fall short of a record, coming in just below the $25 billion raised Alibaba Group Holding Ltd.’s in 2014.
While the target valuation will make Aramco the world’s biggest public company by some distance, overtaking Apple Inc., the plans are a long way from Crown Prince Mohammed bin Salman’s initial aims: a local and international listing to raise as much as $100 billion for the kingdom’s sovereign wealth fund.
In a sign Aramco will rely heavily on local investors and the shares won’t be marketed in US and Canada as originally planned.
Aramco Chief Executive Officer Amin Nasser kicked off the IPO’s final phase at a presentation for hundreds of local fund managers in Riyadh.
Nasser called it “a historic day for Saudi Aramcofor tadawul and the kingdom of Saudi Arabia,” he said. “We are excited about the transition to being a listed company.”
The final version of prospectus didn’t name any cornerstone investors, though the company
is still in talks with Middle East, Chinese and Russian funds.
Foreign investors have suggested they would be interested at a valuation below $1.5 trillion. That would offer a return on their investment close to other leading oil and gas companies.
The new valuation implies Aramco, which has promised a dividend of at least $75 billion next year, will reward investors with a dividend yield of between 4.4% and 4.7%. Exxon Mobil pays a dividend yield of just under 5%, while Shell pays 6.4%.
“We expect a decent cover in the range of two-to-three times 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.”
Speaking in Riyadh on Sunday, Nasser acknowledged the prospect of peak demand, but argued that with lowest production costs in the industry, Aramco would be able to win market share from less efficient producers. The Aramco IPO is a pillar of Prince Mohammed’s Vision 2030 plan to change the social and
economic fabric of the kingdom.
Proceeds from the IPO will be transferred to the Public Investment Fund, which has been making a number of bold investments, plowing $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.
No matter what the final valuation, the share sale will create a public company of unmatched profitability. Aramco earned net income of $111 billion in 2018 on revenue of $315 billion.