Saudis Admit Aramco Not Worth $2 Trillion: “It’s A Much Tougher Sell Now”

On Sunday morning, a series of headlines from Reuters notes that Saudi Aramco has finally set a price range for its IPO between $1.6 to $1.7 trillion, far below the $2 trillion levels the Saudi crown prince had imagined for the last several years, but priced higher than most institutional analysts

• SAUDI ARAMCO SETS INDICATIVE PRICE RANGE OF 30/32 RIYALS PER SHARE-SOURCES

• SAUDI ARAMCO’S VALUATION AT $1.7 TRLN AT TOP END OF ANNOUNCED PRICE RANGE-ACCORDING TO REUTERS CALCULATIONS

Aramco said Sunday it would sell 1.5% of its shares (3 billion shares) for around $8 per share, valuing the IPO around $25.6 billion. 

Over $25 billion would be a record-breaking IPO value amount, which would eclipse the amount Alibaba Group Holding Limited raised in its 2014 IPO debuted. 

Saudi Aramco is worth up to $1.7 trillion at the price range set by the oil giant on Sunday, below the $2 trillion sought by Saudi’s crown prince but putting it in the running to become the world’s biggest IPO. More here: https://t.co/fo7Y6x9jvi pic.twitter.com/TZAwLfmnZw

— Reuters Business (@ReutersBiz) November 17, 2019

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Several sources told Reuters that Aramco has no intention to list in the US. 

• SAUDI ARAMCO NO LONGER USING 144A RULE FOR DOMESTIC IPO, MEANING IT WILL NOT MARKET THE SECURITIES IN THE UNITED STATES – TWO SOURCES

Aramco’s elevated valuation has been a difficult sell to institutional investors amid the emergence of climate activism in the West, and the concern that medium to long-term oil demand is slowing as a global synchronized slowdown gains momentum. 

Notably, even at this lower-than-$2trillion valuations, it remains notably rich to analysts’ expectations.  According to 40 percent of 24 investors surveyed by Bloomberg, Aramco’s value is between US$1.2 trillion and US$1.5 trillion. Nearly all banks have huge gaps in their low-end and high-end valuations. The valuations from 16 banks that have come up with estimates range from as low as US$1.1 trillion to as high as US$2.5 trillion, Bloomberg says, quoting people who have reviewed all estimates.

The Organization of the Petroleum Exporting Countries (OPEC) is a Middle East-dominated producer group of 14 countries, led by Saudi Arabia, has recently cut its forecast for global oil demand. It expects consumption in 2023 to reach 103.9 million BPD, down from 104.5 million BPD in a 2018 report. 

Electric vehicles will likely see explosive growth across Organisation for Economic Co-operation and Development (OECD) countries in the next decade — also depressing the demand for petroleum products. 

And while Aramco’s IPO has been pitched as a way to fund Crown Prince Mohammed bin Salman’s (MbS) Vision 2030 plan to transform the economic structure of the kingdom to a more sustainable greener path, the real reason that MbS could be rushing the IPO is that Saudi Arabia is running out of money. 

The country has been thrown into a fiscal crisis with MbS searching for new revenues, former CIA chief David Petraeus recently told CNBC. 

Then there’s the geopolitical threat in the region where Iran could conduct more drone and cruise missile attacks on Aramco facilities.

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With too much uncertainty surrounding the Aramco IPO, some institutional investors are likely to watch from the sidelines as the world’s largest IPO could imminently debut on the Tadawul exchange.

But we give the last word to Bloomberg’s Julian Lee, who notes that: “the time to bring private investors into Saudi Aramco was when everybody wanted a piece of the action. Twenty years ago investors would have fallen over each other beating a path to Saudi Aramco’s door. It’s a much tougher sell now.”