Saudi Aramco's IPO could now fall short of becoming the world's largest © Saudi Aramco
Saudi Aramco's IPO could now fall short of becoming the world's largest © Saudi Aramco

Saudi Aramco valuation falls short of $2tn target

19 November 2019

Lack of transparency and attacks on facilities have “dampened enthusiasm” for Saudi Aramco’s IPO, according to analysts.

Drone attacks on Aramco’s Abqaiq crude processing facility and Khurais oil field in September 2019 raised the firm’s risk profile and contributed to a lower than expected valuation, according to business information company S&P Global Platts.

Saudi Aramco announced it will be selling up to 1.5% of the company at 30 riyal and 32 riyal a share, valuing the company between $1.6tn and $1.7tn. Some analysts had valued the oil giant at $2.3tn. 

The value also fell below the $2tn target set by Saudi Arabia’s crown prince Mohammed bin Salman.

“Swirling questions about Aramco's transparency and Saudi government involvement in its finances and operations remain largely unanswered, contributing to dampened foreign enthusiasm for the IPO,” S&P Global Platts said. 

It added the limiting of the IPO to Riyadh’s Tadawul stock exchange could also “effectively render the listing a transfer of wealth from the Saudi private sector to the government”.

While an international sale of additional shares could follow in the next couple of years, regulatory hurdles and “Aramco's reluctance to disclose closely guarded operational secrets” could prove challenging, S&P Global Platts added. 

Saudi Aramco’s IPO, which was first reported in 2016, was expected to be the world’s largest. However, it may now fall short of the record flotation set by Alibaba, which raised $25bn in September 2014. 

Meanwhile, a report by data and analytics firm Global Data found the global oil and gas industry witnessed a substantial boost from contract activity in the Middle East, mainly due to Saudi Aramco.

The total value of contracts awarded reached $44.4bn in Q3 2019, primarily due to Saudi Aramco’s 34 engineering, procurement, and construction-related contracts (EPC), worth over $18bn, for projects including the Marjan and Berri field incremental development programme in Saudi Arabia. 

The company planned to boost the fields’ production capacity by 550,000 barrels per day of crude oil, and Saudi companies made up 50% of the awarded contracts. 

Pritam Kad, oil and gas analyst at GlobalData, commented: “Saudi Aramco’s commitment towards enhancing local presence is demonstrated in-line with its In-Kingdom Total Value Add (IKTVA) initiative, which is designed to drive domestic value creation. 

“The recent 34 EPC-related contracts, worth over $18bn, also support this initiative as most of the contract work will be undertaken by local companies/subsidiaries.”

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