IPO to pin $1.7T value on Aramco

The Aramco listing would aim to drum up cash for a government looking to significantly reduce its budget deficit.

Saudi Arabia’s state oil giant could be valued at up to $1.7 trillion, according to a price range announced Sunday for its upcoming listing, less than the $2 trillion figure the kingdom’s crown prince had previously targeted.

Saudi Aramco said in a press statement Sunday morning that it’s hoping to sell a 1.5% stake in the company, or about 3 billion shares. The indicative price range for the shares is 30 Saudi riyals ($8.00) to 32 riyals, valuing the initial public offering (IPO) up to as much as 96 billion riyals ($25.60 billion).

The figure implies that the oil giant is worth between $1.6 trillion to $1.7 trillion. The IPO next month could beat the record $25 billion raised by China’s e-commerce firm Alibaba when it debuted in New York in 2014.

Aramco’s listing is due in December and the company said last weekend that it will sell up to 0.5% of its shares to individual investors.

Speculation and delayed announcements on the public listing of the world’s most profitable company have riveted investors and market watchers since plans for the float were first disclosed three years ago.

The oil giant has delayed the IPO — originally scheduled for 2018 — multiple times, reportedly over Saudi concerns about public scrutiny over its finances and because of the complexity of its corporate structure.

Analysts’ valuations of the company have varied from $1.2 trillion to $2.3 trillion. In comparison, Aramco’s closest U.S. rival, Exxon Mobil, has a market cap of nearly $300 billion and Chevron is valued at about $229 billion.

When the IPO was first flagged in 2016 by the now-Crown Prince Mohammed bin Salman, he said then that he believed the company was worth around $2 trillion.

The Aramco listing would aim to drum up cash for a government looking to significantly reduce its budget deficit and diversify its economy beyond oil as part of the crown prince’s Vision 2030 program.

The country’s economy is still largely reliant on oil exports. Lackluster oil prices (a barrel of Brent crude is currently priced near $63) have prompted the country’s budget deficit (the amount by which its spending exceeds its revenues) to widen.

In 2018, the budget deficit was forecast at around 136 billion riyals (or around $36 billion), according to the kingdom’s Ministry of Finance. It’s expected to be a similar amount in 2019. And in 2020, the kingdom expects the deficit to widen to $50 billion, the kingdom’s finance minister said in October.

Zachary Cefaratti, CEO of Saudi fund manager Dalma Capital, told CNBC Sunday that the preliminary valuation was in line with his company’s expectations and it was planning to subscribe to the IPO in two funds it managed.

“Aramco will have a sizable weight of nearly 10% in the Saudi local market index based the current price range and stake, and Saudi Arabia’s weight in the MSCI Emerging Markets index will also increase as a result,” he said, adding that it was a “positive step” toward Saudi Arabia diversifying its economy. (CNBC)