1. What’s different about this IPO?
Saudi Arabia is leaning on its allies and subjects to help out. Wealthy families in the kingdom, some of which had members detained and accused of corruption by the government two years ago, have been encouraged to invest. Saudi Arabia is also trying to convince sovereign wealth funds to join the fray.
2. How much is Aramco worth?
That’s the big question. Aramco’s IPO was delayed just days before the expected October launch after doubts re-emerged about the $2 trillion valuation Prince Mohammed placed on the oil giant. The prince caused something of a shock in 2016 when he first announced the plan and gave his lofty estimate, which figured Aramco to be almost twice the size of Microsoft Corp., the world’s most valuable listed company. Some equity analysts put the number closer to $1.5 trillion. (Bloomberg Intelligence estimates $1.1 trillion.)
3. Will it be a world record?
That depends on the valuation. The original plan was to sell 5% of the company on international and domestic markets. That would have valued the IPO at something between $50 billion and $100 billion -- far outstripping the world record $25 billion raised by Alibaba Group Holding Ltd in New York in 2014. But the proposal was scaled back, with plans now to sell around 2% only on the domestic exchange in Riyadh followed by another chunk later, according to people familiar with the matter. A 2% stake sale would, however, represent a world record IPO at the crown prince’s $2 trillion valuation.
4. What’s the impact of the latest delay?
Aramco, which pumps about 10% of the world’s crude oil, said on Oct. 18 that the timing of the IPO will depend on market conditions and that it continues to engage with shareholders on activities related to the listing. The latest postponement, by at least a few weeks, will allow the Wall Street bankers advising Aramco to incorporate third-quarter results into their pre-IPO assessments of the company, according to people briefed on the situation. Banks are still struggling to meet the valuation the company is seeking, according to one of the people, who asked not to be identified discussing private deliberations. Now, a listing is unlikely before December or January.
An international share sale is still in the offing, possibly as soon as next year. It’s proved fraught with complications. For instance, New York’s appeal was limited by a U.S. law allowing victims of terrorism to sue foreign governments linked to attacks, which may have opened the possibility of litigation targeting Aramco. Overseas listings also open the company to intense and unprecedented scrutiny. Aramco has taken steps in lifting the veil on its operations by releasing financial results.
The timing raised eyebrows. Oil prices have fallen 26% in the past year, and the outlook for global growth suggests they may drop further. An aerial attack on Aramco’s largest processing plant in mid-September briefly wiped out half the company’s production capacity, highlighting its vulnerability as well as the region’s heightened geopolitical tensions. Saudi Arabia is left in a conundrum. It has delayed the share sale while it prepares financial results it hopes will prove its resilience in the face of those attacks, in a bid to meet Prince Mohammed’s targeted valuation. But it must weigh that against the risk that oil prices fall further and make his valuation harder to achieve.
7. How attractive is the IPO?
Aramco makes more money than any other company, but investors may balk if the valuation is set too high, particularly given the political risk. To attract investors, the authorities are reshaping the oil producers’ finances (most of its revenue goes in taxes and royalties to the government) as well as promising bumper dividends. For instance, the royalty it pays for Brent crude prices below $70 a barrel is falling to 15% from 20%. The “base dividend” in 2020 will be $75 billion -- much bigger in magnitude than other oil giants pay but a good deal smaller in terms of yield.
8. Will overseas investors buy?
The deal has been extensively marketed to international investors, according to people familiar with the plans, and approaches have been made to potential key investors including Malaysia’s Petroliam Nasional Bhd. and China’s Sinopec Group and China National Petroleum Corp. Aramco is also expected to use offering rules that enable it to market the shares directly to some international investors, according to the people. Following the IPO, foreign fund managers tracking the MSCI Emerging Markets Index are set to buy. They’re already large consumers of Saudi stocks, and Aramco stands to become the largest Saudi stock.
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