The secret is out. Saudi Aramco’s top IPO advisors are revealed. They are out there not for the money but for the name recognition and hoping for a stake in Saudi’s expanding business pie.
The celebratory news was dampened by Saudi Tadawul’s shock reaction to the new that a mega listing will dwarf any one or combination of shares put together.
But first who are the players?
Reuters names Aramco IPO consultants
Saudi Aramco has hired nine banks as joint global coordinators to lead its planned initial public offering (IPO), according to two sources familiar with the matter telling Reuters this past Wednesday.
The mandates have been heavily sought by the world’s biggest investment banks.
In a new twist, Reuters says the kingdom plans to list 1% of the state oil on the Riyadh stock exchange, Tadawul, before the end of this year and another 1% in 2020, as initial steps ahead towards listing 5% of the oil company.
A 1% float would be worth $20 billion if Aramco is valuated at a $2trn company.
“Aramco has selected JPMorgan Chase & Co, Morgan Stanley in a lead role and Saudi Arabia’s National Commercial Bank, which were previously working on the share sale before it was paused last year,” the Reuters sources said.
Aramco has also chosen Bank of America Merrill Lynch, Goldman Sachs Group, Credit Suisse Group AG, Citigroup Inc, HSBC Holdings PLC and Saudi Arabia’s Samba Financial Group, the sources added.
The state oil company appear to have started informing lenders of their mandates on Wednesday.
The IPO plan has rapidly gained momentum in recent days with the appointment of the head of the kingdom’s PIF sovereign wealth fund, Yasser al-Rumayyan, as Aramco’s new chairman, taking over from former energy minister Khalid al-Falih
The world’s most profitable company intends to launch the IPO process as early as this Friday September13, 2019 gathering the banks to allocate specific assignments.
Several analysts have given Aramco a $1.5 trillion valuation.
A local listing, which would sidestep legal complications and onerous disclosure requirements, could later be extended to an overseas listing, according to the Financial Times (FT).
Crown Prince Mohammed Bin Salman has targeted a valuation for the company of up to $2trn.
“Some banks are believed to have pitched for their IPO mandate at valuations of up to $2.5tn, although industry analysts have warned a range of $1tn-$1.5tn is more realistic,” said FT.
Bloomberg Intelligence values Aramco at $1.1 trillion because of the likelihood that Saudi Arabia will need to limit its output.
As CNBC first reported on Sunday, J.P. Morgan will likely be the lead underwriter.
“Saudi Arabia is pushing ahead with the listing for as early as this November, first on the domestic Saudi exchange and then London or New York next year,” said CNBC.
Tadawul shares down
The Tadawul All Share Index dropped sharply negating this year’s gains after the kingdom picked banks for the IPO sale, spurring market players to realize the initial public offering really is happening.
“All local index constituencies should suffer outflows,” Slava Breusov, a senior analyst with the emerging and frontier equities team at AllianceBernstein in New York, told Bloomberg.
The stock index trimmed losses of as much as 2.5% to 1.4% at the close. About 85% of the index’s stocks fell.
Assuming the company’s valuation is about $1.5 trillion, a 1% listing would put Aramco at 5.2% of the main stock index, according to Mohamad Al Hajj, an equities strategist at EFG-Hermes in Dubai, Bloomberg reports.
“That would dilute the dominance of other market heavyweights, such as Al Rajhi Bank, which currently accounts for 15% of the index. The Aramco equity would receive roughly $1.9 billion in inflows from MSCI and FTSE passive trackers alone, almost a tenth of total foreign inflows into the Saudi bourse so far this year,” reported Bloomberg.
Aramco’s profit in the first half of the year was more than four times the combined earnings of 170 Saudi publicly traded companies that reported earnings, according to data compiled by Bloomberg.
The Company’s net income was $46.9 billion for H12019, compared to $53 billion for the same period last year.