Aramco Prices At Top-End Of Range: Raises Record $25.6BN In World's Biggest IPO

In line with expectations, Saudi Aramco just priced its IPO at the high end of the targeted range, selling 3 billion shares or a 1.5% stake at 32 riyals ($8.53) per share for a total of $25.6 billion, and giving the oil giant a market valuation of $1.7 trillion, making it the world's biggest company (surpassing Apple) thanks to the what is now the world’s biggest-ever IPO. The money raised by the state-owned producer breaks the record set by Chinese ecommerce giant Alibaba in 2014, but gives the company a valuation well below the $2 trillion sought by Crown Prince Mohammed bin Salman.

According to Bloomberg, the closely watched deal which was confined to Saudi accounts over fears of the types of questions that would emerge in an international roadshow, saw a total of $119 billion in subscriptions and was 4.65x oversubscribed but that is simply laughable considering that the Saudi were forced to once again extorting its oligarch like Prince Alwaleed to invest in the IPO at the metaphorical (and perhaps literal) barrel of a gun.

The oil company will also likely exercise its 15% “green shoe”, which would allow it to issue up to 15% more shares to meet demand and could see it ultimately raise more than $29 billion.

In Riyadh's panicked scramble to get the IPO done at any cost, local retail investors were offered loans to purchase stakes, promised bonus shares and targeted in a nationwide advertising campaign. Meanwhile, in a hilarious flashback two two years ago, wealthy Saudi families, many of whom were caught up in the crown prince’s 2017 corruption crackdown, were also pressured to invest.

Saudi Aramco executives have in recent weeks also tried to drum up interest from state-backed funds in the Gulf, including Abu Dhabi — which was expected to invest $1.5bn. Kuwait was also considering putting in $1bn.

To make sure the deal goes smoothly, Saudi Arabia hired almost all of Wall Street’s biggest banks to advise on the IPO that will see about 1.5% of the company sold. Some of Aramco's bankers had advised that a more prudent approach would be to sell shares more cheaply in an effort to ensure they trade higher after their debut, a person familiar with the matter said. Clearly, they were overruled, and so the question is how far will Aramco's price drop once it breaks for trading.

“The banks advised the client to play it safe,” the person said. “There is a risk to the lenders if the shares trade down.”

As the FT notes, the kingdom also sought to increase the company’s appeal by pledging a bumper annual $75bn dividend, which is relatively speaking, below what many of its western peers offer, changing tax and royalty rates as well as curbing long-term capital spending to help cash flows.

Despite such enticements, overseas investors have remained cautious.

The total amount raised -whether $26 or $29BN with the greenshoe - will be a huge disappointment to Prince Mohammed, who for the last four years pushed to raise $100 billion by selling 5% of the group in a global financial capital such as London or New York. In the end he had to satisfy himself with a quarter of this amount sold on a domestic market. Even so, the $25.6 billion total sale means the company surappsed the previous record of $25bn set by Alibaba when it went public in New York.

At $1.7tn, Saudi Aramco’s market capitalisation will still be more than that of the five next biggest oil companies combined. Still, it is worth recalling that just over a decade ago, another energy giant, China's Petrochina, became the world's first company to hit a $1 trillion market cap shortly after its 2007 IPO on the Shanghai Stock Exchange.

PetroChina’s market value has since plummeted to less than $140 billion, representing the largest destruction of shareholder wealth in world history. Will Aramco follow in Petrochina's footsteps? For those who say yes, you finally have a chance to short it. 

For those curious for more, here is a good explainer by the WSJ: