Saudi Aramco set the final price for its shares at the top end of the range, valuing the state-owned oil giant at US$1.7 trillion and making it the world’s largest IPO. The shares were priced at 32 riyals (US$8.53), according to a statement. The initial public offering was 4.65 times oversubscribed, with most of the money coming from local investors. It received total bids of US$119 billion.
The company didn’t say when the shares will start trading in Riyadh. The deal ended up being a very different one from what was originally envisaged. Aramco offered just 1.5 per cent of its shares and Saudi Arabia had to trim its ambitions after global investors balked at the kingdom’s hopes of valuing the company at US$2 trillion. Instead, Aramco relied heavily on Saudi investors. In the retail offering, 4.9 million people applied for shares. The institutional tranche closed on Wednesday and attracted bids totalling 397 billion riyals.
The kingdom’s richest families, some of whom had members detained in Riyadh’s Ritz-Carlton hotel during a so-called corruption crackdown in 2017, are expected to have made significant contributions to the IPO. Global banks working on the deal were sidelined after Saudi Arabia decided to focus on selling the shares to local and regional investors. Still, Aramco will become the world’s most valuable publicly traded company once it starts trading, overtaking Microsoft Corp and Apple Inc.
Saudi Arabia had been pulling out all the stops to ensure the IPO is a success. It cut the tax rate for Aramco three times, promised the world’s largest dividend and offered bonus shares for retail investors who keep hold of the stock.
Proceeds from the IPO will be transferred to the Public Investment Fund, which has been making a number of bold investments, plowing US$45 billion into SoftBank Corp.’s Vision Fund, taking a US$3.5-billion stake in Uber Technologies Inc. and planning a US$500-billion futuristic city.
Existing supply curbs of 1.2 million barrels per day, aimed at supporting oil prices and preventing excess supply, are set to expire in March.
Saudi IPO colours their stanceProducers face another year of rising output from the United States along with other non-OPEC producers Brazil and Norway.
"With a weaker U.S. dollar, improving economic data and OPEC aggressively managing supply, this should ensure a $60-$65 Brent oil price in the seasonally weak period of next year," said Gary Ross, founder of Black Gold Investors.
OPEC's actions have supported oil prices at around $50-$75 per barrel over the past year. Brent crude futures on Thursday extended this week's gains to trade above $63 per barrel.
Non-OPEC member Russia had previously opposed extending or deepening cuts as its companies are arguing that reducing output during winter months amid low temperatures damages the fields.
Saudi Arabia was more keen on reducing output as the kingdom needs higher oil prices to support its budget revenue and the initial public offering (IPO) of Saudi Aramco.
"Saudi Arabia is pushing for deeper cuts to try and shore up prices," said Amrita Sen, co-founder of Energy Aspects. "However, deeper compliance is imperative and hence the deal will last only for one quarter so that they can assess compliance then."
And there is another consideration, as well: The Saudi Aramco IPO doesn’t necessarily want lower oil prices, and the Aramco IPO pricing will be decided on Thursday, too. That’s one indication that things may go the way increasingly bullish hedge funds are hoping they will."