The ‘Goldilocks’ level in the Aramco IPO — $8.75 a share

Saudi Aramco has published more details about its planned stock market flotation. (File/Reuters)

• There are currently 200 bn shares in existence in Saudi Aramco
• 0.5 percent of the shares will be targeted at private shareholders

DUBAI: Enough clues are emerging from the Saudi Aramco prospectus for the forthcoming initial public offering (IPO) to make an informed guess about what the price per share will be when the stock is finally priced on Dec. 4 ahead of Tadawul trading a few days later.
I must stress that I am not the recipient of any inside information in this respect, merely an observer of stock market dealings and IPOs going back to the 1980s — long before they became known as IPOs and were usually called “floats” or listings.” But my logic goes like this.
We know that there are 200 billion shares in Saudi Aramco in existence — that’s in the prospectus — and we know that about 0.5 percent of them will be targeted at private shareholders — Saudi nationals, resident expats who bank at the right place and GCC citizens — in the IPO.
So that means 1 billion shares, give or take a few maybe, will be offered to investors in the non-institutional tranche of the offering.
Of course, we don’t know yet what the total market capitalization of Aramco will be once the book-building process is completed. That will depend largely on demand among the big global institutions.
But the range of values produced by the banks advising on the IPO is huge — from a low of $1.2 trillion to a high of $2.3 trillion. It is unlikely the IPO would go ahead at below $1.5 trillion, and more than $2 trillion just seems exorbitant, even in the Kingdom’s wildest dreams.
So let’s assume a “Goldilocks” mid-way point of $1.75 trillion — not too hot for the international buyers, not too cold for the vendors.
That would equate to a price of $8.75 per share, meaning that the private shareholder tranche would be looking to raise $8.75 billion, or roughly $260 from each man, woman and child in the Kingdom’s population of 33.4 million.
That does not seem too excessive for the IPO of a lifetime.