Saudi Aramco's IPO set to break records after getting regulatory approval
On Friday, November 1, Saudi Arabia’s Crown Prince Mohammed bin Salman gave his approval for Saudi Aramco to float its shares on the Tadawul exchange in Riyadh. This has kick-started the six-week process before the shares start trading in mid-December 2019.
This signals that the Kingdom is ready to accept less than $2 trillion valuation — something that the Prince was insistent upon in the past couple of years. However, the $2 trillion ask made investors hesitant, leading to a delay in the IPO.
With the green light from the Prince, bankers are now targeting a valuation of $1.6 - $1.8 trillion. Even with this valuation, CNN reports that selling even 1% of the company at the bottom of that range would fetch $15 billion, while selling 2% at the top could generate $40 billion," in which case the IPO will break the record set by Alibaba Group of raising $25 billion at its IPO in 2014.
In 2018, Saudi Aramco shared it's financial information in light of the IPO, showcasing it to be the world's most profitable company with $111 billion in net income that year, more than Apple, Alphabet (Google’s parent company). and Exxon Mobil Corp. combined, reported Bloomberg.
Even though it is the world’s most profitable company, the IPO share sale’s capital generation will strengthen Saudi’s sovereign wealth fund, that has previously invested the largest share in SoftBank’s $100 billion Vision Fund.
The Saudi Aramco IPO is a key aspect of Vision 2030 in which the crown prince wants to transform the Saudi economy, reducing its dependence on oil. Today, the oil giant pumps about 10 percent of the world’s oil.
Sweetening the deal, Aramco is also considering to boost its dividend in 2020 to $80 billion, that is $5 billion more than initial plans. “At $1.8 trillion that would mean a yield of 4.4%, a decent payout in a low-interest-rate world, but still lower than the 5% Exxon investors currently get,” reported Bloomberg.
While the demand for Aramco’s shares is strong within the Kingdom, bankers are looking to woo international investors. They have reportedly invited money managers from London to Saudi Arabia to hold meetings in the coming days.
At the announcement conference, Amin Nasser, the CEO of Aramco said that the IPO prospectus will be released on 9 November 2019.
While the IPO has been previously delayed, this time with the approval of the crown prince, Aramco’s shares are expected to trade on the Tadawul exchange by the end of this year.