Monday, November 11, 2019

Investors Still Unclear on Saudi Aramco IPO Value

November 4, 2019

AdobeStock / © Redindie

Saudi Aramco's blockbuster listing remained shrouded in mystery on Monday, a day after the company finally announced its plans, with scant details disclosed and expert valuations varying wildly from around $1.2 to $2.3 trillion.

The state oil giant, the world's most profitable company, fired the starting gun on a domestic initial public offering (IPO) on Sunday after a series of false starts that had kept the investment world guessing.

However potential investors, already rattled by a crippling attack on Aramco's facilities in September, were not given key details usually included in such "intention to float notices" - such as how much of the company will be sold, and when the sale will happen.

Now fund managers are poring over bank research about the famously secretive company, but little certainty has been provided by even analysts from the Wall Street giants with roles in the Riyadh bourse listing, five sources told Reuters.

Crown Prince Mohammed bin Salman has said he wants a $2 trillion valuation, seeking to raise billions of dollars in the IPO to diversify the Saudi economy away from oil by investing in non-energy industries.

That figure is almost twice that of Microsoft (MSFT), currently the world's most valuable listed company and seven times that of Exxon Mobil Corp, the most valuable listed oil major by market cap.

Analysts from banks working on the deal have met with Aramco's management in Dhahran over the past month to get more information on the company, but their valuations of Aramco still vary by around $1 trillion.

Bank of America Merrill Lynch has a range of $1.2 trillion to $2.3 trillion while EFG Hermes says $1.55 trillion to $2.1 trillion, two fund managers who have seen the research reports said.

Goldman Sachs - one of the IPO coordinators - has put the company's valuation between $1.6 trillion and $2.3 trillion, two separate sources said. Credit Suisse's research offers a similarly wide range in value, one of the fund managers said.

A major factor in the wide range is the various assumptions analysts are making for the future direction of oil prices, said a source familiar with the deal.

The banks were not immediately available for comment.

Sources have told Reuters that Aramco could offer 1%-2% of its shares, raising as much as $20 billion to $40 billion. A deal over $25 billion would top the record-breaking IPO of Chinese e-commerce giant Alibaba in 2014.

Aramco Chairman Yasir al-Rumayyan said a decision on an international listing would be made in the future, without giving a timeframe or venue.

ROADSHOWS AND RISK
Aramco did provide investors with some extra financial information on Sunday and Monday, including its detailed nine-month earnings, which showed net income fell to $68.2 billion by the end of September 30, down from $83.1 billion a year earlier.

The company did not give any reason for the fall in earnings, but it likely reflects lower oil prices compared with 2018.

By Saeed Azhar, Stanley Carvalho and Ron Bousso


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