Finally, Saudi Aramco’s IPO happens — to more of a damp squib than fanfare

After much delay and considerable uncertainty, Saudi Aramco finally got its IPO away, albeit only on the domestic Saudi market and not in New York, London or Hong Kong – yet.
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Shares were priced at $8.53, or 32 Saudi riyals. As such, the IPO will raise $25.6 billion for the kingdom’s coffers and value the company at $1.7 trillion. This was the top end of recent estimates of U.S. $1.1 trillion to $1.7 trillion, according to The New York Times but way short of the Crown Prince’s rumored target of $2 trillion.
At $8.53 per share, the offering is expected to raise $25.6 billion — a fraction of the $100 billion that Prince Mohammad bin Salman originally imagined, the article states.
The challenge has been the market did not view Aramco as favorably as the Saudis did. This comes in part because in a weak oil market and with longer-term threats to fossil fuels, not to mention a risky political backdrop in the Middle East, at $2 trillion the valuation appeared too high relative to other major oil companies.
Some bankers were even talking of a valuation in the range of $1.2 trillion to $1.3 trillion, to which the Saudis are said to have reacted angrily and whipped the IPO away from a team of some 75 international bankers to keep the float domestic. There isn’t sufficient investor demand in the region to enable the Kingdom to realize the value of a full float, so at some stage they will revisit London or New York for a listing there.
That may be a factor in Saudi Arabia’s decision announced at a Vienna meeting of OPEC+ this month to increase the output cuts by an additional 500,000 barrels a day.
The move had the desired effect — boosting the oil price — although it raised as many questions as it answered, not least is that 500,000 extra cutbacks could be off the agreed output limits, rather than off the actual output. Both Saudi Arabia and Angola are said to be producing less than their approved limits already, so if this additional 500,000 barrels reduction is off the agreed limit, then it could be largely cosmetic.
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Nevertheless, a higher oil price would certainly help the Kingdom’s prospects of achieving a higher value in the future as it gradually offloads its shares in what was billed as the world’s most profitable company.

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