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Saudi officials ‘unhappy’ with foreign demand for Aramco IPO

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Via Financial Times

Saudi Arabian officials have told bankers they are unhappy with the level of foreign demand for Saudi Aramco, adding to pressure ahead of an investor roadshow due to start on Sunday.

Advisers informed officials this week about a gulf in demand between domestic investors and foreign institutions in the run-up to the much-delayed initial public offering, said two people familiar with the process.

“The issuer expressed high levels of dissatisfaction with what they were hearing,” said one of these people.

Financiers are increasingly confident of bumper domestic demand at a valuation of $1.8tn or higher, banking on a retail allocation above the 0.5 per cent earmarked in the prospectus. Local investors, some of whom have been pressured to invest, have been encouraged to bid at these higher levels.

In recent weeks, institutional investors have told bankers that $1.2tn to $1.5tn is more realistic.

Saudi officials have made recent trips to China and Russia in an attempt to shore up demand from state-owned funds, which they believe would help close the gap. Saudi pension funds, as well as other sovereign funds, are also expected to buy into the offering.

A person close to the process said the company was hoping to sway investors during the roadshow.

Shares in Saudi Aramco could list on Riyadh’s Tadawul stock exchange as early as next month, nearly four years after the heir apparent Crown Prince Mohammed bin Salman first disclosed his ambitions for a flotation. The kingdom seeks to list 1 to 3 per cent of the company, raising between $20bn and $60bn.

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The process has been dogged by delays primarily linked to the company’s inability to secure a $2tn valuation sought after by Prince Mohammed, although he is said to have since lowered his expectations.

Riyadh still has to make a final decision on the size of the deal, the price range and other crucial details about the offering that were not disclosed in the prospectus published last week.

Institutional investors are expected to offer a range of bids along the price spectrum, taking smaller amounts at a higher level and more at the lower, two people familiar with the IPO process have said.

One prominent Gulf investor, who has been approached by an IPO underwriter, said he would be willing to make a large allocation at a valuation of $1.3tn, with half of his investment covered by a loan from the bank.

“[The kingdom] won’t get $1.8tn — they need to leave something on the table for investors, that is how to secure a success,” said this person.

Institutions have been concerned about governance issues, state interference in company strategy as well as the kingdom’s ability to protect oil infrastructure after attacks on Saudi facilities in September.

After investors are formally canvassed over the next two weeks a final price is expected to be announced on December 5 ahead of the trading of shares the following week.

“Two or three weeks ago there was still hope of [a valuation] above $1.5tn, now I don’t know,” said one banker.

Additional reporting by Andrew England and Arash Massoudi in London

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