Page 4 - MEOG Week 44

MEOG Commentary MEOG
Aramco sets
stage for IPO
with Tadwul float
Details are beginning to emerge around the shape of the Aramco IPO as the firm’s first listing takes shape on the local Tadawul exchange.
saudI arabIa
What:
1-2% of the company is to be floated on
the Riyadh stock exchange, with bank valuations ranging from $1.2tn-$2.3tn.
Why:
Crown Prince Mohammed bin Salman is adamant that the company
should be valued at
$2tn and final meetings look to have increased valuations, though there appears to still be a consensus that the eventual price will land around $1.5tn-$1.6tn.
What next:
Either way, Aramco is the most profitable company and the most valuable company in the world and investor appetite is likely to be strong despite numerous setbacks.
SaudI aramco announced its intention this weekend to proceed with an initial public offering (IPO) on the main market of the local exchange, Tadawul.
The announcement brings to an end several years of debate about whether or not it would eventually take place. Crown Prince Moham- med bin Salman (MBS) has been adamant that the company would be valued at $2tn. Bank val- uations, including IPO adviser Goldman Sachs, were reported by Reuters this week as varying wildly from $1.2tn to $2.3tn, though anywhere in this range would make aramco the largest company in the world by hundreds of billions of dollars – apple and Microsoft are each valued at around $1tn.
Meetings are understood to have been held with investors in a late attempt to bump the ara- mco valuation up to the $2tn mark.
Bloomberg reported at the weekend that it had been told by sources close to proceedings that aramco was now willing to accept a valu- ation of $1.6-1.8tn in order to ensure that the listing is successful.
The announcement is also some way off the original proposals, which suggested 5% of the company would be sold on the main exchange of either London or New York.
aramco will now list 1-2% on the Tadawul, with a further international listing expected in 2020. The local stock sale is seen challenging for the title of the world’s largest IPO, a title currently held by alibaba ($25bn). Listing 2% on Tadawul assuming a median valuation of $1.6tn would return $32bn to aramco.
Speaking during a news conference on November 3, aramco’s new chairman Yasir al-Rumayyan said that the firm’s valuation would be determined during the roadshow and book-building ahead of the IPO.
He said: “I think this is the right time for us” and added: “If we consider an international list- ing, it will be in the future.”
Meanwhile, CEO amin Nasser said that
the prospectus for the IPO would be released on November 9. at this point, the details of the shares available will be released, as well as per- haps the valuation, ahead of full trading begin- ning on or around december 12.
during the news conference, it was announced that a total of 27 banks would work on the IPO marketing, with nine banks over- seeing the listing as joint global co-ordinators: Citigroup, Credit Suisse, Goldman Sachs, HSBC, JPMorgan, Merrill Lynch, Morgan Stanley, NCB Capital and Samba Capital & Investment Man- agement Co.
Lazard, Michael Klein and Moelis have been retained to act as special advisers and five Saudi banks are working as domestic bookrunners and 11 as foreign bookrunners.
Over November 3 and 4, the aramco chiefs provided supplementary financial information including its nine-month earnings to September 30 that showed a drop in net income to $68.2bn from $83.1bn in the same period last year.
Importance and timing
aramco, the crown jewel of the Saudi economy, is very much a sought-after asset class among private Saudi investors, who have been locked out for decades by the ruling class from directly participating in the company’s fortunes.
Russian investors eager to put a foot in the door of one of their largest competitors in the global crude oil market, having also expressed strong interest in taking a stake in aramco, said Kirill dmitriev, CEO of the Russian direct Investment Fund.
Meanwhile, Western investors seem to be staying on the sidelines.
despite a competent person’s report (CPR) by deGolyer & MacNaughton last year broadly affirming reserve levels, questions persist about the value of investing in aramco, particularly given the volatility of the oil market and the fact that the 5% to be sold would not include any rights to the kingdom’s oil concession.
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w w w . N E W S B A S E . c o m Week 44 05•November•2019