Aramco’s historic IPO — the view from the ADIPEC stand

The Saudi Aramco stand at ADIPEC was probably the single most visited exhibit at the gigantic energy show Abu Dhabi puts on every year.

But while most visitors gazed intently at the scale models of oilfields and listened politely to the talks on advanced drilling techniques, the elephant on the stand was, of course, the initial public offering (IPO) of the world’s most profitable company.

Everybody wanted to discuss the IPO and had plenty of talking points thanks to the prospectus published the day before ADIPEC (Abu Dhabi International Petroleum Exhibition and Conference) opened its doors. Few, I must point out, would go on the record, so here is a “vox pop” consensus view of the many conversations that took place about the Aramco IPO.

They were on the whole grateful for the level of disclosure in the IPO prospectus, and said they had learned a lot from the document, though nobody had read the full 658 pages.

Of course, they were all awaiting the crucial numbers on valuation, percentage to be sold and price, but understood that privatizing the biggest company in the world is “a marathon, not a sprint,” in the words of one stand visitor. Those numbers will emerge after the bookbinding process that begins next week.

Nonetheless, many respondents were prepared to offer opinions as to where the numbers might finally land. On the crucial issue of total valuation, one American, an expert in the oil business, thought that the vendor of the shares — the Kingdom — had drawn back from the higher-end valuation of $2 trillion (SR7.5 trillion), and would probably be prepared to get the IPO away at between $1.5 trillion and $1.7 trillion.

The vox pop from the Aramco stand at ADIPEC was illuminating. The IPO really is the only game in town at the moment.

Frank Kane

Would there be demand from US investors at that level? My expert said that talk of US financial institutions staying away from the IPO as a protest over the death of Jamal Khashoggi was overblown. After all, he pointed out, the tragic incident did not stop them going for the Aramco bond issue in record numbers this year.

As ever, the financiers were looking for value for their money and a stream of income from their investment. “Capital preservation and capital appreciation,” as a British banker put it. Here, the critical issue is the dividend investors can expect on their shares.

Aramco has ring-fenced $75 billion of dividends, with pre-emptive rights for IPO investors ahead of the government, which was noted and welcomed. Reports that the dividend could actually increase from
$75 billion to more than $100 billion, depending on the oil price, went down well.

The IPO is a Tadawul-only affair at this stage, so perhaps the most crucial aspect is the demand among Saudi nationals, expats resident in the Kingdom, and GCC (Gulf Cooperation Council) citizens who can also buy IPO shares in Riyadh.

The Saudi nationals I spoke to — maybe half a dozen conversations out of 20 — were unanimous: They wanted to buy the shares, partly out of patriotic duty and partly because they were confident of the long-term value of Aramco.

Some were arranging special bank facilities for the IPO, while others were selling assets — mainly land and other Tadawul investments. Contrary to reports, I did not find anybody who was taking out a second mortgage on their home to fund the share purchase.

Overall, from my straw poll, it seems as though the 0.5 percent reserved for private investors will be snapped up, and Aramco may have to adjust its figures to accommodate for a potential overspill of wealthy investors who go for more.

There were a few reservations and uncertainties about the IPO. Would the Tadawul be able to cope with the biggest IPO in history? Would outsiders — “strategic foreign investors” are specifically mentioned in the prospectus — affect the valuation?

Several knowledgeable oil people noted the fact that the IPO would be priced about the same time as the next crucial OPEC meeting in Vienna, which could affect
those aspects of the valuation based on crude prices.

Not a few stand visitors expressed concern that the Kingdom might still be vulnerable to the kind of attacks witnessed at the Abqaiq processing plant and Khurais oilfield in September, which could have a big effect on the IPO outcome.

The vox pop from the Aramco stand at ADIPEC was illuminating. The IPO really is the only game in town at the moment.

• Frank Kane is an award-winning business journalist based in Dubai

Twitter: @frankkanedubai