Saudi Aramco IPO should be judged on its impact not its valuation, says GlobalData
GlobalData says the long-term value of the IPO, and its impact on Saudi Arabia's economic diversification, outweighs potential concerns about its valuation
Saudi Arabia’s national oil company Saudi Aramco has issued its prospectus to potential investors in its initial public offering (IPO).
“The public sale of shares in the world’s biggest oil exporter will be the first time since the 1970s that private and foreign investors will have been able to own a stake in the Gulf’s upstream oil and gas assets," said Colin Foreman, deputy editor at GlobalData. “The IPO is a cornerstone play in Riyadh’s Vision 2030 economic reform programme, launched in April 2016, which seeks to diversify Saudi Arabia’s oil-dominated economy and increase the role of the private sector by driving growth and job creation.
“On 3 November, Saudi Aramco announced its decision to list shares on the Saudi Stock Exchange (Tadawul). The IPO is widely accepted as the largest ever, although key details about pricing and the number of shares to be offered have yet to be announced. Much depends on the valuation of the company.
“Riyadh is seeking to raise $100bn from the sale, which will be used by the government to limit budget deficit and debt growth, as well as support several infrastructure megaprojects planned in the kingdom.
“When the intention to list was first revealed by Crown Prince Mohammed bin Salman bin Abdulaziz al-Saud in early 2016, he gave the company a valuation of $2trn. Since then, a myriad of estimates have valued the company, with most now expecting a valuation of $1.5trn to $2.3trn.
“While the valuation will continue until the company debuts on the Tadawul, the more important issue for Saudi Arabia is the ultimate impact of the IPO. The plan is for the proceeds of the IPO to go to the Public Investment Fund (PIF), which is the government’s shareholder in Aramco. PIF has been tasked with delivering a wide range of projects in the kingdom across multiple sectors. After two to three years of planning, these projects are moving into the construction phase, which requires a major rise in investment.
“If the proceeds of the Aramco IPO are invested as planned, and become a catalyst for broader development, then the long-term value of the listing will greatly outweigh any potential disappointment in the company’s valuation.”