Should You Invest in the Saudi Aramco IPO?

The global oil and gas market of publicly traded stocks is about to get bigger with the launch of Saudi Aramco. The government-owned Saudi Arabian oil company provided preliminary pricing details for its highly anticipated initial public offering on Nov. 17.

This paved the way for local banks and institutional investors to place orders for the 1.5% of outstanding shares offered to the public. The final pricing of the shares is expected on Dec. 4, while trading at Tadawul Stock Exchange takes place on Dec. 11.

The IPO highlights

Early estimates provided by the company to prospective investors priced a single share of the stock between 30 riyals and 32 riyals ($8.10 to $8.64), which based on the number of shares on offer would value the IPO at around $24.3 billion to $25.9 billion. The high end of that estimate would make Aramco’s IPO the biggest ever, just ahead of Alibaba Group Ltd.’s (NYSE:BABA) 2014 debut, which was valued at $25 billion.

Taking the given IPO price estimates, this effectively values Saudi Aramco at about $1.62 trillion to $1.73 trillion, making it the biggest publicly listed company in the world in terms of market capitalization.

That’s just about the average of the initial valuation estimates from fund managers and the Saudi Crown Prince, who earlier put the value of the company at about $2 trillion. On the other hand, some analysts, led by Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS), had estimated the valued of the company at as low as $1.1 trillion, while others went as high as $2.5 trillion.

The disparity in valuation has contributed to what some have termed as an exodus of foreign investors, which is why 73% of the orders placed for shares have come from local banks and institutional

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