On Sunday, Saudi Arabia held a press conference announcing the long-awaited initial public offering of the state oil company, Saudi Aramco—or so it seemed. But the oil kingdom’s intention to list Aramco has been well-known for some time now. We already know that Aramco is the most profitable company in the world and its initial public offering is slated to be the largest IPO of all time. Still, the real details that potential investors have been waiting for – how many shares will be listed and at what price – remain unknown.
In fact, this press conference just pushed off more information for a later date. All the public learned from this press conference was that a regulatory agency of the king’s government (the Capital Market Authority or CMA) approved an IPO of a company owned by the king, according to a plan that has been pushed by the king’s son for almost four years. This is barely even news.
The most valuable information gleaned from the Sunday announcement is that, according to the Aramco CEO, a prospectus for the IPO will be released on November 9. There is till no target date for the listing to occur. It is expected by December, but could still be called off if Saudi Arabia is not satisfying with investor interest during the book building period. A target valuation for the company was not clarified, though some of the banks involved released valuation ranges to the press after the announcement. According to Bloomberg and Energy Intelligence, these include the following:
Bank of America: $1.22 to $2.27 trillion
GoldmanSachs: $1.6 to $2.3 trillion
HSBC: $1.59 to $2.1 trillion
BNP Paribas: $1.42 trillion
EFG Hermes: $1.55 to $2.1 trillion
It does seem now that the kingdom will accept less than the $2 trillion originally touted by Prince Mohammed in early 2016.
As part of the IPO announcement, the company released a document that designed to highlight the importance and success of the company. Aramco is the most profitable company in the world, and over the last 30 years its Saudi leadership has created an integrated and diversified business with highly efficient operations and insightful strategy. However, the communications about the IPO, including Sunday’s announcement and the accompanying document, have been abnormal and outside of the typical behavior and processes of company pursuing an IPO.
The document released along with the announcement on Sunday explicitly stated that the information is not intended for New York, London or Tokyo markets. This is not an IPO that matches global standards. From the start, Saudi Arabia did everything backwards. In 2016, when Mohammed bin Salman first raised the possibility of an IPO and opened with a claim that Aramco would be worth at least $2 trillion. Leading with an announcement of this kind of valuation did not help the company business, because it was made precipitously, long before the company books were ready for an IPO and without a good assessment of the value by financial institutions.
Sunday’s announcement – which was held on a Sunday and conducted in Arabic – was not designed for the international community. Even though the company and the kingdom desperately want international funds to invest in Aramco’s IPO, the way the IPO is being handled signals that this is a Saudi event, run according to Saudi rules — which effectively mean that the king’s desire rules.
Aramco’s chairman, Yasir Ramayyan, did not even have good answers as why the company is going public now. According to Financial Times he said, “Why not now? . . . This is the right time for us. Typically, investors are used to dealing with company business—not politics. But this IPO is a political deal, and investors would do well to remember that.