Saudi Aramco’s $2 trillion valuation still possible, says Al Jazira banker

Reem Abdellatif, Al Arabiya English

A $2 trillion valuation for Saudi Aramco is still possible thanks to overwhelming interest from retail investors in Saudi Arabia and beyond, a bank researcher told Al Arabiya English.

The state oil giant – already the world’s most profitable company – is expected to become the world’s most valuable company when it lists for the first time on the Saudi Stock Exchange, known as Tadawul, on December 11.

“They can achieve a $2 trillion valuation,” said Talha Nazar, head of research at Riyadh-based Al Jazira Capital, the investment arm of Saudi Arabia’s Bank Al Jazira.

The government has targeted a $2 trillion valuation for the company ever since it first announced its intention to sell shares in 2016.

The target has been a constant source of contention since then, with many international analysts predicting that the ultimate valuation will be lower. Global asset management firm Alliance Bernstein, for example, recently predicted a valuation between $1.2 trillion and $1.5 trillion.

Nazar pointed to the company’s commitments to pay out a significant dividend, estimated at $75 billion in 2020, and a bonus shares guarantee as elements that could lift the valuation.

The company has announced that Saudi Arabian retail investors who hold their shares for a minimum of 180 days, or six months, will be eligible for a 10 percent discount through the allocation of additional bonus shares.

“The company has done enough. Now it depends on oil prices, because the oil price trend is something that is primal. Saudi Aramco is the cheapest producer by a distance, so any increase in oil prices will have a multifold impact,” he added.

Another factor that could push up the valuation is the volume of demand for shares. Retail investors are expected to take up 0.5 percent of the company, and bankers report very strong demand for the shares, including from people who are even borrowing money to invest.

“There is great retail investor demand for the Aramco IPO, which is the main reason why 0.5 percent has been allocated to them. This might sound small in percentage terms but it is sizeable in real terms,” said Munther Hilal, founder and CEO of Dubai-based Gate Capital.

“The retail sector still drives the liquidity on stocks and uses much of the margin facilities given by banks,” he added.

ALSO READ: Aramco IPO to shakeup Saudi market, long-term positive: Analysts

Banking sources have told Al Arabiya that the company intends to sell a total of 2 percent of its equity in the IPO, which would leave 1.5 percent for professional and institutional investors.

Although stock markets across the Gulf region are predominantly retail-driven, Aramco’s IPO was initially expected to be allocated only to institutional investors – such as banks or hedge funds, said Hilal. But, Aramco is considered a part of Saudi Arabia’s sovereign wealth, so a retail element in the IPO was seen as essential.

Hilal said that some prospective buyers had raised questions over the lock-up period and the possibility of an additional listing.

The company said in its IPO prospectus published on Saturday that there would be two lock-up phases: A statutory lock-up – under which the government will prohibit Saudi Aramco from listing additional shares for six months after the commencement of trading; and a twelve-month contractual lock-up – which will stop shareholders from selling any of their shares except to foreign governments or a strategic investor affiliated with a foreign government.

“The main concern of the retail [phase] is the lock up period and whether a second listing will actually take place or not, but overall, there is unprecedented demand for the IPO,” Hilal said.

Saudi officials had initially spoken of a sale of five percent of Aramco’s equity, and many analysts expect the company to list shares on an international exchange in due course.

The Aramco IPO is at the center of Saudi Arabian Crown Prince Mohammed bin Salman’s Vision 2030 economic reform plan. Proceeds are expected go towards investments in other sectors to diversify the Kingdom’s economy away from oil.

“While [Saudi Arabia] is going through a major reshaping of its economy and its dynamics, it is imperative to engage the retail into all facts including a major IPO like Aramco,” Hilal added.


Saudi Aramco is the Kingdom’s state-owned energy company and the world’s biggest oil producer. In November, the company reported a profit of $68 billion for the first nine months of 2019 – making it the most profitable company in the world.
An initial public offering (IPO) is the process by which a company sells a portion of its ownership (shares) to public investors to raise funds (also known as capital). The company sells its shares by listing them on a public stock exchange, where investors can purchase them.
"I am honored to announce that Saudi Aramco will become a listed company on the Saudi Stock Exchange,” Chairman Yassir al-Rumayyan said in early November. The exact percentage of the company and the possibility of another listing on a foreign exchange are both still unknown details, however.
Senior Saudi Arabian authorities have targeted a $2 trillion valuation. At this valuation, a 5 percent listing would raise $100 billion in funds – dwarfing any other IPO in history. However, some analysts and investment banks have predicted a range closer to between $1.2 and $1.5 trillion.
The IPO prospectus is expected to be released on November 10, with pricing expected November 17. Meanwhile, the float is expected to take place on December 4, followed by trading on December 11.
The IPO is part of Saudi Arabia’s overall strategy to transition into a post-hydrocarbon age. The income generated would be funneled into the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund (SWF). Saudi Arabia’s Vision 2030 plans to transform the PIF into a giant investment vehicle to help the country diversify its economy and reduce its reliance on oil revenues.
Saudi Vision 2030 is the Kingdom’s ambitious plan to diversify its economy by reducing dependence on oil and developing non-oil sectors ranging from healthcare to mining. The IPO is seen as a cornerstone of Vision 2030, boosting the PIF as the long-term investment vehicle for the Kingdom.

Saudi Arabia’s Crown Prince Mohammed bin Salman

- The Crown Prince is the architect of Vision 2030 and originally announced plans to list shares of Saudi Aramco in 2016.

Prince Abdulaziz bin Salman, Saudi Arabia’s Energy Minister

- Prince Abdulaziz assumed the role of energy minister in September of this year, replacing Khalid al-Falih.

Yasir al-Rumayyan, Chairman, Aramco

- Al-Rumayyan became chairman of Aramco’s board in September. He is best known as governor of the PIF, a role he continues to hold.

Amin Nasser, President and CEO, Aramco

- Nasser has been with Aramco for more than three decades and has held numerous leadership positions.