Saudi Bourse Sags as Giant Aramco Listing Looms

The kingdom hopes for a $2 trillion valuation for the firm

The kingdom hopes for a $2 trillion valuation for the firm

Saudi Arabia's long-awaited initial public offering (IPO) of shares in Saudi-state owned Saudi Aramco oil company was confirmed on Sunday after Riyadh agreed to list it on the domestic stock exchange.

The announcement paves the way for a domestic stock listing of Aramco, with share trading expected to begin in December, while its plans to launch on an worldwide bourse remain unclear.

Saudi Aramco's President and Chief Executive Officer Amin H. Nasser said that the giant state oil company is looking to deliver sustainable dividend growth to shareholders.

Crown Prince Mohammed bin Salman first announced plans for a partial IPO in 2016.

January 24, 2016 Saudi Aramco chairman said IPO could be open to global markets, in interview to Arabiya TV. Aramco's USA oil refining subsidiary Motiva Enterprises [MOTIV.UL] owns the 607,000 barrel-per-day Port Arthur, Texas, refinery, the largest in the United States and in 2017 announced plans for $18 billion in investments in its operations in the Americas over five years.

Saudi Arabia is aiming for a valuation of between $1.6 trillion and $1.8 trillion, according to people familiar with the matter.

The old process would usually take around 4-6 weeks on the Saudi bourse, he told a news conference to launch the IPO with company executives at Aramco's headquarters.

The oil giant is reportedly valued at about $1.5 trillion, although reports say Crown Prince Mohammed bin Salman's administration pegs it at $2 trillion.

Market experts say it is part of efforts to bolster its network in the Middle East via an investment in Saudi Arabia's major corporate names.

The sale of part of Aramco forms the foundation of Prince Mohammed's turnaround plan for Saudi Arabia.

BofA gave Aramco a $1.22 trillion valuation as its lowest cost scenario and $2.27 trillion as its highest.

The Capital Markets Authority (CMA), which regulates Tadawul, has already opened up the Saudi market to foreign investing institutions, provided they meet the standards for "qualified foreign financial institutions".

Aramco said that, effective January 1 2020, it will adopt a progressive royalty scheme, with a marginal rate set at 15% up to $70 per barrel, 45% between $70 and $100, and 80% if the price rises higher.

Saudi investors will be incentivized to buy: They'll be eligible for one extra share for each 10 they buy within the first 180 days.

More than two dozen banks are handling the blockbuster IPO, including Citigroup, Credit Suisse, Goldman Sachs, and HSBC. It is a "rare" move for the sovereign fund to make its investment intention public.

Prince Mohammed also came under intense global criticism a year ago for the killing of Washington Post columnist Jamal Khashoggi in Istanbul by Saudi operatives, a murder for which the crown prince has said he bears responsibility "because it happened under my watch".

The IPO is created to fund Mohammed's ambitious economic reform agenda by raising billions to build non-energy industries and diversify revenue streams. But the project was shelved amid concerns about legal complications in the United States, as well as doubts about the USD$2 trillion valuation sought by bin Salman - only to be revived earlier this year after Aramco pulled off a successful worldwide bond sale.

The company's net income in 2018 was $ 111.1 billion, well beyond the combined net income of the oil giants BP PLC, Chevron Corp, Exxon Mobil Corp, Royal Dutch Shell PLC and Total SA.

To boost investor appetite, Aramco said it will pay an income tax rate of 20% on its domestic downstream business starting next year, compared with current levies of between 50% to 80%. Post-dividend, the so-called cash break-even would drop below $60 a barrel from 2020 to 2023, the bank said in its report.

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