Saudi Aramco's bookrunners recommend IPO should be priced at top end


This week, Saudi Arabia unveiled its plan for the budget in 2020. The generated funds will be used for the development of the country's economy.

"The bottom line is that they need the money, they need that outside investment that is crucial to delivering "Vision 2030". But Saudi Crown Prince Mohammed bin Salman isn't leaving anything to chance.

Aramco's market debut is meant to help diversify Saudi Arabia's economy away from its overwhelming reliance on petroleum.

Saudi Arabia anticipates $222 billion in revenue next year, down 14.6% from the $260 billion estimated for 2019. Plans for a $500 billion futuristic city announced in 2017 have raised concerns that the prince may end up sinking more cash into vanity ventures. It will go to Saudi Arabia-to the king and his government.

The shock move cemented his rule, but also made worldwide investors nervous.

Climate change concerns, political risk and a lack of corporate transparency put foreign investors off the offering, forcing the kingdom to ditch ambitions to raise as much as $100bn via an global and domestic listing of a 5pc stake.

Saudi Arabia is also facing intense worldwide scrutiny after the murder of Saudi journalist Jamal Khashoggi past year in the Saudi consulate in Istanbul and for its role in a war in Yemen. Next year, too, is expected to see even less oil production for the Kingdom, with Saudi Arabia agreeing to even lower production figure, and then offering to produce 400,000 bpd less than that figure.

The company is expected to list its shares on the Tadawul later this week. Security risks remain high on that list, as well as climate change and the company's dependence on demand from Asia, its prospectus said. In terms of this amount, Aramco has become the highest fundraising company through IPO.

"If they are able to garner enough interest right now, that should provide a benchmark for the pricing of Aramco shares... and that can be used at a later date when they're trying to go for an worldwide market", said Ranjith Raja, a lead analyst at Refinitiv. Aramco's IPO is only one of the tools employed to reach the goal of economic diversification. Aramco is thought to be the world's most profitable company. But this may hold less appeal for investors as profits slip.

"We chose to lower the valuation we were seeking, but on the 11th the shares will be trading and in a few months from will be higher than the 2 trillion USA dollars and I will bet this will happen", added.

The IPO also comes with oil prices under pressure due to a sluggish global economy hit by the US-China trade war and record output by non-OPEC crude exporters. "It reflects superior governance, corporate culture and competence at the company".