Saudi Aramco hits Crown Prince’s $2tr goal

[Shahzaz ud din]

Saudi Aramco hits Crown Prince’s $2tr goal
Aramco's IPO is the centrepiece of Saudi crown prince's vision for diversifying the kingdom away from its oil dependence

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Agencies
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December 12, 2019
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RIYADH/DUBAI: Saudi Aramco hit the $2 trillion target sought by de-facto Saudi leader Crown Prince Mohammed bin Salman on Thursday as its shares racked up a second day of gains, despite some scepticism about the state-owned oil firm’s value.

Aramco’s initial public offering (IPO) is the centrepiece of the Saudi crown prince’s vision for diversifying the kingdom away from its oil dependence by using the $25.6 billion raised to develop other industries.

But that is well below his 2016 plan to raise as much as $100 billion via a blockbuster international and domestic IPO.

Riyadh scaled back its ambitions after overseas investors baulked at the proposed valuation and only 1.5pc of Saudi Arabian Oil Co (Aramco) shares were listed on the Riyadh stock exchange on Wednesday, a tiny free float for such a huge company.

Aramco shares hit 38.7 riyals ($10.32), lifting its market value above $2 trillion and closed at 36.8 riyals, a rise of 4.5pc from Wednesday’s close and valuing the company at $1.96 trillion, Refinitiv data showed.

While a 10pc jump in the stock on its debut, the maximum allowed by the Riyadh exchange, was hailed by the Saudi government as a vindication, support was largely from loyal Saudi and Gulf rather than overseas investors.

The IPO was frontpage news in mainstream Saudi media, with headlines such as “Aramco at the top of the world” and “A dream come true”.

But Bernstein analysts put Aramco’s value at around $1.36 trillion, which compares with U.S. energy giant Exxon Mobil’s market capitalization of less than $300 billion.


“Saudi Aramco is the largest, most profitable oil company in the world – but size is not everything,” they wrote, flagging the risk of slow net income growth if oil prices stay flat.

An International Energy Agency (IEA) report pointed to pressure on oil prices, predicting a sharp rise in global inventories despite an agreement by OPEC and its allies to deepen output cuts as well as lower expected production by the US and other non-OPEC countries.

Bernstein said Aramco should trade at a discount rather than a premium to international oil majors, with corporate governance “the key risk” as the Saudi government owns more than 98pc of it.

“For actively managed funds, one of the key considerations – aside from valuation – will be ESG (environmental, social and corporate governance) criteria,” said Tim Love, Investment Director for emerging markets equities at GAM.

Some 15.9 billion riyals worth of Aramco shares were traded by the close, with around 417.7 million shares exchanging hands, Refinitiv data showed. This made up most of the total turnover of the whole Riyadh market which was 18.5 billion riyals.

“Initial price action has validated our thesis that Aramco discounted its IPO price to leave upside on the table and allow regional investors to benefit from the listing of its crown jewel,” Zachary Cefaratti, CEO of Dubai-based Dalma Capital, which invested in the IPO, said in a note on Thursday.

“The average institutional investor received less than 1/6th of the shares they bid for in the IPO, and have had to buy shares on the open market,” Cefaratti said of the Aramco deal, which became the world’s largest, topping the $25 billion 2014 listing of China’s Alibaba.

 

[PakFactor]

A total failure international enthusiasm died down — not just due to delays of its IPO, but changing technology as well. Due to other factors they had to only list on national exchange and forgo international market.

In few years KSA economy will slide down.

 

[HannibalBarca]

A total failure international enthusiasm died down — not just due to delays of its IPO, but changing technology as well. Due to other factors they had to only list on national exchange and forgo international market.

In few years KSA economy will slide down.

I smell bitterness... And the International market opening is already on track... only the marketplace need to be chosen... Maybe a China/Japan place...

 

[Saddam Hussein]

A total failure international enthusiasm died down — not just due to delays of its IPO, but changing technology as well. Due to other factors they had to only list on national exchange and forgo international market.

In few years KSA economy will slide down.

In a few years you will be arabized

 

[ArabianEmpires&Caliphates]

A total failure international enthusiasm died down — not just due to delays of its IPO, but changing technology as well. Due to other factors they had to only list on national exchange and forgo international market.

In few years KSA economy will slide down.

Keep dreaming my Arabized and Arab obsessed inferiority ridden troll. KSA has a natural ressources and mineral wealth worth almost 100 trillion USD. Only 6.5 times larger Russia and 4 times larger US has more wealth in the world. Immense potential for solar, wind etc.

Every future economic prognosis places KSA in the top 15 of the world’s largest economies.

KSA is a G20 economy and the economy is booming, especially the non-oil/gas sector. One of the youngest populations in the world, quickly growing population, untold economic potential etc.

Largest IPO in the world and reaching the 2 trillion USD valuation is spinned negatively haha. Talk about an obsession.

Keep crying.

In a few years you will be arabized

He is already Arabized to s great extend. He might not be aware of it but a closer look at his religion, large part of his culture and practices, language, alphabet, cuisine, architecture, naming customs, names, surnames are Arab in origin or influenced by Arabs. Let him be.

 

[ArabianEmpires&Caliphates]

PDF trolling aside;

2.06 trillion USD in fact.

 

[ArabianEmpires&Caliphates]

This fantastic news is killing the propaganda pamphlets in the West and elsewhere that were crying 24/7 of KSA never reaching the 2 trillion USD goal.

Now they are crying their eyes out.

 

[ArabianEmpires&Caliphates]

Year in review: How Aramco defied the odds

Short Url
https://arab.news/2td7z

Updated 31 December 2019
FRANK KANE
December 29, 2019

• Aramco overcame sceptical West, geopolitical risks and climate concerns to pull off the world’s biggest share sale
• IPO has given KSA international capital market status and the confidence to play a global role in the financial world

DUBAI: On Dec. 11, Yasir Al-Rumayyan and Amin Nasser — chairman and chief executive respectively of Saudi Aramco — rang the opening bell at the Tadawul stock exchange in Riyadh in a shower of ticker-tape, and the Kingdom’s business and economic scene was changed forever.

Al-Rumayyan, who had pushed through the initial public offering (IPO) of shares in the face of some opposition from Western financial advisers, spoke of a “proud and historic moment” as he described the event as a “milestone” on the Vision 2030 path to the Saudi economy’s diversification away from oil dependency.

Others thought the IPO’s true significance was even more profound. Ali Shihabi, well-known commentator on Saudi affairs, said the offering was a “monumental development” as part of the “cultural shock therapy” under way in the Kingdom, under the guidance of a new generation of reformist policymakers led by Crown Prince Mohammed bin Salman.

The IPO has instantly given Saudi Aramco the status of the world’s most valuable company, made the Kingdom’s ambitious sovereign wealth fund, the Public Investment Fund, richer by roughly $30 billion, and catapulted Tadawul into the top flight of global stock exchanges.

But, perhaps more significant, it is also the first stage in a process that could see further sales of Aramco shares, with a listing on a foreign stock exchange a distinct possibility in the near future.

On top of the hugely oversubscribed $12 billion bond Aramco issued earlier in the year, the IPO has given Saudi Arabia a certain cachet in the international capital markets and the self-confidence to play a global role in the financial world.

It is also likely to accelerate the Kingdom’s eastward tilt, away from the big financial centers of New York and London and towards the growing Asian hubs, such as Tokyo and Hong Kong.

One executive for an Asian finance house in the Middle East, who did not wish to be named, said: “Some people say floating a small percentage will make no difference, but that misses the point. Aramco has signed up to Tadawul’s standards of transparency and accountability, and no other national oil company has to obey stock market rules like that.”

The opening ceremony was the culmination of a process that began in late 2016, when the crown prince stunned the world with the news that he was considering a stock market flotation for the biggest oil exporter in the world.

A Saudi Aramco oil processing facility in the Eastern Province. The company’s IPO is likely to accelerate the Kingdom’s eastward tilt, away from the big financial centers of New York and London and towards the growing Asian hubs, such as Tokyo and Hong Kong. (Getty Images)



Back then, it was suggested around 5 percent of Aramco might be sold, that the company could be valued at $2 trillion, and that the IPO would happen pretty quickly.

Those plans evolved and adapted to changing circumstance. Last year, at the World Economic Forum annual meeting in Davos, Nasser told Arab News that the biggest single reason for the delay in the IPO was the desire to strengthen Aramco’s position in the booming downstream petrochemicals sector with the acquisition of SABIC.

That deal went through early last year, removing the last strategic obstacle to the IPO.

The valuation had been a matter of debate ever since the IPO plans were first announced.

Seasoned observers of the financial markets agree that there is nothing unusual about a difference of opinion between the vendor (the government of Saudi Arabia in this case) and potential buyers (the international investment community).

Both are looking to maximize their return on the deal.

With a company as big and strategically significant as Aramco, other factors inevitably came into play during the complex negotiations between the government and its advisers.

The oil price — inevitably a big element in determining Aramco profitability and therefore valuation — was under pressure throughout the IPO planning stage as American shale flooded global markets.

As a leading member of OPEC, the Kingdom took action, in partnership with Russia and other non-OPEC oil producers, to stabilize the price.

FASTFACT
6x - Consulting firm Thunder Said Energy found Saudi Aramco to be six times more efficient than ExxonMobil and Chevron in both current emissions and targets for future reduction as a proportion of its gas production.

Then, just as details were being finalized for the publication of the IPO prospectus — the crucial document on which the valuation is assessed — the risks of doing business in the Middle East were thrown into stark relief with the Iranian attacks on Aramco facilities at Abqaiq and Khurais.

With “geopolitical risk” on top of analysts’ minds, another negative had been thrown into the valuation process, despite Aramco’s rapid recovery from the attacks, which had the potential to dramatically alter the IPO arithmetic in turbulent global energy markets.

The whole pricing process was also conducted against the backdrop of a changing investors attitude to “Big Oil” companies as the debate intensified about the best way to tackle climate change.

Despite being the biggest exporter of fossil fuel in the world, Aramco has strong credentials in the environment lobby, with low levels of pollutants from its production and refining processes and a high level of investment in new, anti-polluting technology.

Another factor cited as a headwind when the shares were being priced was Western reaction to the murder of journalist Jamal Khashoggi the previous year, though this had not prevented investors in New York and London from subscribing to the Aramco bond a few months earlier.

By mid-November, when the final decision on pricing had to be taken, there was a huge range in the valuations as assessed by the small army of international and regional financial institutions advising on the IPO.

At a fractious meeting in Riyadh, one banker was reported as saying “there is real tension in the banking syndicate.”

Al-Rumayyan cut through the dissent with a simple formula: The IPO would not be marketed in Western financial centers like London and New York, and would instead focus on Saudi and regional investors.

The Westerners had been the leading advocates of a lower valuation, and Aramco advisers explained that there was little sense in marketing to them when they had been dragging their feet on the valuation.

In any case, ample provision had been made for foreign investors to take up shares in the IPO via the Tadawul.

That logic turned out to be amply justified. At a compromise valuation of around $1.7 trillion, there was more than enough demand in the region when the share sale was finally launched.

The offer was nearly five times oversubscribed in total, implying that more than $100 billion of demand was chasing only $26 billion worth of shares.

Among Saudi investors, there was big demand for the flagship offering. Some 5 million citizens and expat residents bought shares in the offering to become equity partners in the company that has been at the heart of the Kingdom’s prosperity for more than 80 years.

They can look forward to a healthy dividend stream as well as bonus shares if they hold on to their stake for a minimum of six months.

So far, they have had no reason to regret their decision to invest in the world’s most profitable company.

In contrast to many big IPOs in 2019 — like ride-hailing firms Uber and Lyft, not to mention the aborted flotation of WeWork — Aramco shares surged on opening, and soon hit the $2 trillion valuation, allowing the Kingdom to tick another box of the IPO check-list.

Drone attacks in September sparked fires at two Saudi Aramco oil facilities in Abqaiq but they recovered quickly from the attacks. (AFP)



It has since fallen back, but is still above the issue price. Investment bank adviser Goldman Sachs has shares in reserve to smooth out price fluctuations.

With the dividend already set in stone, there are two main, interconnected factors that will determine the share price going forward — Aramco’s underlying level of profitability, and the price of oil on international energy markets.

“If oil prices stay consistently in the $70-$80 range, there will be greater interest in global oil stocks generally,” said the executive of the Middle East-based Asian finance house.

But the OPEC+ limits on production could also affect Aramco profits for the current year, he warned.

“Overseas skepticism about the valuation has not disappeared,” the financier added, implying that the mainly Western banks that tried to talk down the IPO price would not buy shares at current prices.

But in that case, Aramco has another trick up its sleeve. There are plans under discussion to list the shares on an Asian stock market, with Tokyo edging ahead of Hong Kong as the preferred venue. Asian investors are likely to appreciate Aramco’s robust dividend, and are equally keen to ensure strong trading ties with their main supplier of crude oil.

The logic is for Aramco to look further eastwards, away from the skeptical West. “Asia has been Aramco’s primary growth market since the 1990s, when Ali Al-Naimi (former Aramco president and Saudi energy minister) identified it as the largest center for future oil demand,” Ellen Wald, American energy consultant and author of the book Saudi Inc, told Arab News.

“When people notice a so-called ‘move to Asia,’ they are just noticing a decades-old plan.”

https://www.arabnews.com/node/1605791/saudi-arabia

 

[ARMalik]

And the Oil prices going up by 5% due to US Attack has also helped.

 

[ArabianEmpires&Caliphates]

And the Oil prices going up by 5% due to US Attack has also helped.

The goal of the IPO was reached last month long before any rise in oil prices. Obviously higher oil prices is not hurting but KSA's budgets in recent years and for this year have taken low oil prices into account (we are moving away from oil dependency economically) so every rise in oil prices will just result in "free money" to invest with further.

For instance the largest renewable energy projects in the region and some of the largest in the world are taking place in KSA while we speak. Solar, wind, nuclear, dams etc.

 

[ARMalik]

The goal of the IPO was reached last month long before any rise in oil prices. Obviously higher oil prices is not hurting but KSA's budgets in recent years and for this year have taken low oil prices into account (we are moving away from oil dependency economically) so every rise in oil prices will just result in "free money" to invest with further.

For instance the largest renewable energy projects in the region and some of the largest in the world are taking place in KSA while we speak. Solar, wind, nuclear, dams etc.

Fair enough.

 

[ArabianEmpires&Caliphates]

KSA earned a several billion big fortune on its TESLA stocks as well. The investment fund has mostly made very profitable investments but some (as expected) have been less successful.