Wall St banks give Saudi Aramco vast valuation range
Saudi Aramco has been given a valuation range spanning hundreds of billions of dollars, according to research from two Wall Street banks that underlines the dilemma facing lenders working on what is expected to be the world’s largest initial public offering.
The world’s biggest oil company launched its long-expected IPO on Sunday, but it is a process that has been beset by questions over whether Saudi Aramco will secure the $2tn valuation sought by Crown Prince Mohammed bin Salman.
In research distributed to clients, analysts at Goldman Sachs put a valuation range of between $1.6tn and $2.3tn on the oil company, said people familiar with the matter. Analysts at Bank of America Merrill Lynch staked out a range of between $1.2tn and $2.3tn, the people say.
“Everyone has gone with a range. Some that start low, some that end very high,” said another person close to the IPO process. “The research reports enable detailed marketing and feedback so now we’re going to get real responses from investors.”
Goldman Sachs and Bank of America are among a bevy of banks hired to advise on the IPO. JPMorgan, Morgan Stanley, Citigroup, HSBC and Credit Suisse — as well as two Saudi banks — are also working on the float.
Executives from Saudi Aramco and its bankers will meet investors in coming weeks as part of a roadshow designed to drum up international interest for the landmark IPO in Riyadh that is tipped to be the world’s biggest.
So far the Saudi government has not disclosed how much money the company will seek to raise or how much of Saudi Aramco will be sold, but a prospectus will be released on November 9 with the flotation then set to follow in December.
Since disclosing his ambition to list Saudi Aramco in 2016, Prince Mohammed has maintained the company — which made $111.1bn in net income in 2018 — is worth at least $2tn. People close to the IPO have in recent days pushed to moderate the prince’s valuation closer to $1.75tn.
Bankers and investors have privately said that a valuation of $1.2tn to $1.5tn is more realistic. The IPO is the centrepiece of Prince Mohammed’s plan to raise tens of billions of dollars that can be ploughed into non-oil sectors in an attempt to diversify its economy.
Another person familiar with the matter said Prince Mohammed has come to terms with the fact the market will determine the valuation, and the success of his broader economic reform programme is more important than securing a set target.
One person familiar with the BofA research said it uses a discounted cash flow model to come up with its range of valuations. The middle of it would deliver a valuation of $1.67tn-$1.87tn, the person added. “I feel that is where they are aiming for — not less,” he said. “Which will be seen as higher than desirable by institutions.”
Despite enthusiasm in Saudi Arabia for the listing, foreign investors have been concerned about state interference, governance issues and the kingdom’s ability to protect its energy facilities after attacks on its infrastructure in September.
Bernstein analysts on Monday said that a fair value range for Saudi Aramco is $1.2tn to $1.5tn, which would still give it a higher market capitalisation than the eight largest western international oil companies.
Bloomberg first reported the Goldman Sachs and BofA valuation estimates.
Goldman Sachs and BofA declined to comment.