Saudi Arabia Considers Doubling Stakes Offered in Aramco IPO

Saudi Arabia Considers Doubling Stakes Offered in Aramco IPO
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After attacks on its oil infrastructure, Saudi Arabia is moving forward with the much-anticipated initial public offering of its state-owned oil company and considering a proposal to offer investors a much bigger stake in the company than previously planned, people familiar with the matter said.

The Saudi Royal Court and its advisers have been debating an eventual float of as much as 10% of the Saudi Arabian Oil Co., known as Aramco, doubling the country’s longstanding public intention to list just 5%, according to these people.

Saudi Crown Prince


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Mohammed bin Salman

’s plan to expand what has already been billed as the world’s largest IPO suggests his often outsize ambitions are undeterred, even as the country’s oil giant attempts a full recovery from recent attacks on its largest facilities and faces risks to its valuation from subdued oil prices.

Raised Stakes

Aramco’s IPO would be the biggest offering ever. At a valuation of $2 trillion, the company’s current plan to sell 5% of itself could raise as much as $100 billion. The Saudi Royal Court is considering a new plan that could raise up to $200 billion.

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Aramco’s IPO would be the biggest offering ever. At a valuation of $2 trillion, the company’s current plan to sell 5% of itself could raise as much as $100 billion. The Saudi Royal Court is considering a new plan that could raise up to $200 billion.

Top initial public offerings by company valuation

upon completion and

capital raised

$2.0

 trillion

1.8

1.6

Aramco is hoping to be valued at $2 trillion…

1.4

1.2

…and is trying to now sell 10% of the company in the offering to raise $200 billion…

1.0

0.8

…which is twice what they were previously proposing…

0.6

0.4

…and would dwarf all other IPOs in capital raised alone.

0.2

Agricultural Bank

of China

2010

Alibaba 2014

Industrial

& Commercial Bank of China 2006

Throughout the IPO planning, Saudi officials have debated ways to expedite the process and lift Aramco’s valuation closer to the crown prince’s hoped-for $2 trillion. At that valuation, a 10% float could yield $200 billion, eight times more than the $25 billion Chinese e-commerce giant

Alibaba Group Holding
Ltd.

raised inthe biggest IPOin history five years ago.

Little more than a week ago, missiles rained down on Aramco’s Abqaiq oil-processing facility and Khurais oil field, knocking out 5.7 million barrels a day of Saudi production. Saudi officials have said they should be ableto restore productionbefore the end of the month, and return the kingdom’s spare capacity to normal by the end of November.

Some Saudi officials and contractors who have surveyed the damage, however, have said it may take many months—rather than the maximum 10 weeks company executives have promised—to restore operations tofull working order.

Since the strikes, Saudi officials have weighed a delay in the IPO, but Aramco is moving forward with presentations to analysts and meetings with bankers this week, aiming to begin a planned multiphase listing sometime in November. Discussions of achange in the offering’s timinghave been mostly confined to Saudi officials and Aramco executives, according to people familiar with the matter. Meanwhile, work has continued unabated on the deal, some of the people said.

Aramco’s listing is a key source of funding for Prince Mohammed’s plan to diversify Saudi Arabia’s oil-dependent economy. He has indicated that he seeks a $2 trillion valuation for the company, but analysts put Aramco’s value at closer to $1.5 trillion. The IPO was initially delayed from its original launch date of 2018 due to questions over its valuation and the venue for the international listing.

The crown prince is convinced that a larger float would help him finance economic-development projects in the kingdom, people familiar with the matter said. The expanded IPO proposal, under discussion among top Saudi officials since last summer, has the potential to raise more than the $100 billion target, even if the company is valued at around $1.5 trillion.

Aramco officials say they are working 24/7 to repair their damaged oil facilities. Saudi Arabia invited WSJ’s Rory Jones to see the Khurais oil field and Abqaiq processing plant to show Aramco’s efforts to get back to full production and rally international support against Iran ahead of a meeting next week at the United Nations. Image: AP

Aramco and the Saudi government didn’t immediately respond to requests for comment.

Since reviving plans for the IPO in August, the Saudi Royal Court, Aramco’s top executives and outside bankers have moved forward with a blueprint to offer 5% of the company in stages. Under that plan, Aramco would float 1% of the company before the end of the year and another 1% next year on Saudi Arabia’s domestic stock market, the Tadawul. Shortly afterward, the plan would includelisting roughly 3%on an international market, possibly in Tokyo, The Wall Street Journal reported last month.

“The crown prince does not want to stop there,” said a senior Saudi adviser. “He wants another 5% a year or two after we float the first 5%. We could even go beyond that,” the adviser said.

The proposal to float a bigger stake of Aramco has created a rift among top Saudi officials, said people familiar with the matter. The Saudi government removed Khalid al-Falih fromhis posts as energy ministerand chairman of Aramco earlier this month, in part because he disagreed with Prince Mohammed about floating any more than 5% of the company, these people said.

Mr. Falih publicly supported a stock offering, but also worked to delay it and reduce its scope, due to concerns about low oil prices and signs of a global economic slowdown that could reduce demand for oil, according to Aramco executives, advisers and Saudi officials.

Mr. Falih’s fate was sealed when it became clear that he favored a very limited IPO plan. At a meeting in July with the crown prince and his advisers, Mr. Falih advised Prince Mohammed to proceed slowly with the IPO. He argued against the proposal to offer an additional 5% of Aramco, according to people familiar with the meeting.

When he left the room, advisers told the crown prince that Mr. Falih had to go—and within a month, he was dismissed.

“He was not against the IPO, said a former adviser to Mr. Falih. “Aramco meant a lot to him and he did not want a very risky plan.”

As the IPO planning continues this week, the company and its advisers are discussing what is known as cornerstone investors for the domestic listing, said people familiar with the discussions. Wealthy Saudi families are expected to participate, but at this stage the deal is unlikely to have foreign cornerstones, one of the people said, adding that such plans could change.

In the aftermath of the attacks, some Saudi officials see a greater need for a bigger IPO, according to people familiar with the matter. Over the last couple of years, it had become clear to the Saudi government that it needs the IPO proceeds to finance social and military efforts, and todirect toward Neom, a futuristic city it is building at a cost of $500 billion, Saudi officials said.

“This IPO is seen as the answer to many challenges,” said an Aramco executive. “You need the IPO to build a larger industrial sector and you need the money to beef up your military defenses after what happened at Abqaiq and Khurais.”

Write toSummer Said at[email protected]and Julie Steinberg at[email protected]

Corrections & Amplifications
Aramco is considering a new plan to sell 10% of itself in the initial public offering to raise $200 billion. An earlier version of the graphic in this article incorrectly stated the percentage as 20%. (Sept. 24, 2019)

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