Saudi Aramco’s Trillion Dollar Mystery

It’s finally a go.

After years of delays, Saudi Arabia’s oil giant Aramco—the world’s largest oil producer and the world’s most profitable company in any sector— announced on Sunday its intention to proceed with an initial public offering on the Saudi stock market. But Aramco still needs to clear one very important hurdle—its valuation.

Saudi Aramco will issue the prospectus for the IPO later this week, on November 9, with the actual listing on the domestic Tadawul exchange expected to take place some time in December.

The announcement of the intention to float is an important step forward for the company and the top Saudi leadership after years of delays of what would be the world’s largest IPO in history, but it is not the final leg of its journey.

What this initial announcement didn’t announce was how much of its oil giant Saudi Arabia will list on its domestic market and how much money it will raise.

“The price at which all subscribers in the Offering will purchase Shares (the “Final Offer Price”), the number of Shares to be sold, and the percentage of the Shares to be sold will be determined at the end of the book-building period,” Aramco said in the announcement.

It will be the biggest listing ever, but the actual valuation of the world’s largest oil producer, which pumps one in every eight barrels of oil globally today, is still a mystery.

The main sticking point in all the delays in recent years—an issue thornier even than the international venue for the IPO and the low oil prices—has been money–that is, the expected proceeds from the listing.

The Saudis have claimed Aramco is worth US$2 trillion. Banks have begged to differ, putting the valuation closer to US$1.5 trillion, or even lower, if the Kingdom is to have any success in attracting international investors. Both MbS and the banks have been unwilling to move on this.

Reports have it that the Saudis hope to raise US$60 billion from putting up to 3 percent of Aramco on the domestic stock exchange, according to the Financial Times.

This would put the total valuation of the company at US$2 trillion—the figure that Saudi Crown Prince Mohammed bin Salman has been floating since he first said that the Kingdom would list shares in its crown jewel to raise proceeds for economic reforms, including such aimed at diversifying Saudi Arabia’s economy away from…wait for it…oil.

Last week, just ahead of the announcement, Aramco officials and company advisors were busy touring the world to ensure the US$2-trillion valuation.

But the international banks working on the listing have estimates putting the valuation at US$1.5 trillion and even lower, Bloomberg reported on Sunday, citing research that the banks have sent to potential investors.

Banks have a wide (to put it mildly) range in their low and high end of estimates—Bank of America for example has a US$1 trillion gap between the low- and high-case scenarios—US$1.22 trillion and US$2.27 trillion, respectively, according to Bloomberg.

Many analysts see Aramco’s valuation more realistically placed at between US$1.2 trillion and US$1.5 trillion, and it appears that Crown Prince Mohammed bin Salman may have agreed to accept to lower his expectations and go for a valuation lower than US$2 trillion.

People close to the listing process have pushed to lower the Crown Prince’s expectations to a figure closer to US$1.75 trillion in recent days, three sources told FT. The prince has reportedly conceded that the success of the IPO is more important than getting the US$2-trillion valuation, which many see as unachievable.

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