Saudi Arabia has sharply scaled back the initial public offering of its state oil giant after international investors gave its ambitious plans a lukewarm response.
The kingdom revealed on Sunday that it will seek to raise between $24-$25.6bn from the listing of Saudi Aramco, a fraction of the $100bn it had once hoped for.
Aramco will float just 1.5 per cent of its total shares to investors at price that will value the company at between $1.6tn-$1.7tn. This would still make it the largest listed company in the world — overtaking Apple — but it falls far short of the $2tn valuation sought by Crown Prince Mohammed bin Salman, the kingdom’s heir apparent.
Prince Mohammed initially wanted to sell as much as 5 per cent of the company.
While Aramco will still court investment from top foreign institutions, it is now paring back its international roadshow, which will no longer include trips to the US or Japan.
The IPO will instead rely heavily on demand from domestic retail investors, as well as Saudi funds, regional investors and other sovereign funds. Saudi officials have visited China and Russia in recent weeks in a bid to underpin demand from countries that have been keen to deepen ties with the oil-rich kingdom.
One banker on the deal said the listing was effectively an IPO in name only after efforts to recruit foreign investors were curtailed. He added that frustrations among advisers was bubbling over after they were forced to wait for hours on Saturday for a key meeting with Saudi officials that lasted just 10 minutes.
Aramco announced a 30-32 riyal share price range on Sunday, which at the lower end would amount to a smaller deal than the $25bn raised by Chinese ecommerce giant Alibaba’s record IPO in 2014.
The downsized deal suggests the kingdom has bowed to investor concerns about the $2tn valuation sought by Prince Mohammed in order to get a smaller listing over the line.
Advisers this week informed Saudi officials about a big gap in demand between domestic retail investors and foreign institutions, according to two people familiar with the process. “The issuer expressed high levels of dissatisfaction with what they were hearing,” said one of them.
But the announcement of a price range — after months of delay — is the furthest the kingdom has gone in its pursuit of a stock market listing. If all goes to plan, Saudi Aramco could have non-government shareholders for the first time in nearly four decades by next month.
Banks appointed to manage the offering have issued research with a wide range of about $1.1tn-$2.5tn, underscoring the difficulties of coming up with a valuation that would placate both investors and Saudi authorities.
Overseas institutions suggested a $1.2tn-$1.5tn valuation would be more realistic for the company, which made $111bn in net profit last year, according to bankers familiar with the process.
Foreign institutional interest will be limited to the roughly 1,500 qualified foreign investors already able to trade on the Saudi stock exchange or those nominated by Saudi Aramco or its advisers and approved by the market regulator.
Saudi bankers report plentiful domestic demand for the issuance, with pressure on wealthy families and institutions to apply for allocations of shares at the higher end of the valuation.
A wave of retail investment, sweetened with the issuance of bonus shares to Saudi nationals and ample bank lending for allocations, is also expected for the 0.5 per cent of shares earmarked for Saudis.
A bumper $75bn-a-year minimum dividend that would prioritise non-government shareholders and new fiscal terms were among other measures taken to make the company look more attractive to investors.
The bookbuilding process began on Sunday. It ends for retail subscriptions on November 28 and for institutions on December 4. The final price for the shares will be announced on December 5, just as oil ministers from Opec countries meet to decide oil supply policy for the next year.
The part-privatisation of Saudi Aramco — after several false starts — is a litmus test for the crown prince’s ambitious economic reform programme which aims to reduce the kingdom’s economic dependence on oil.
Selling off a stake in Saudi Aramco could presage a broader privatisation plan for the kingdom’s assets as the state seeks to drive non-oil growth and create jobs for its young population.
Prince Mohammed has been keen to portray the share sale as a means by which the average Saudi investor can own a piece of the country’s crown jewel, hoping to secure a political win at home.