Almost about a week ago we have heard that Saudi Aramco, world’s most profitable company is going to score world’s biggest IPO. But as the December 4, 2019 deadline is coming near its becoming clearer that this oil giant still needs demand from local investors to claim the throne.
Till date biggest IPO’s crown is with Alibaba worn in 2014 weighing about $25 billion. It was said for Saudi Aramco to easily cross that mark but some factors, including interest from western investors at the time of global tensions and weakening oil prices and global warming issues.
Last weekend, UAE government planned to sell 1.50% share of companies share in its local share market Tadawul Stock Exchange in a range between 30 & 32 riyals ($8.10 to $8.64) per share bringing the value of company to value betwwen $ 1.62 trillion to $ 1.73 trillion.
The company did not make the offer in the United States, Canada, Japan, and Australia.
So what happens now ?
According to the Saudi investment bank Samba Capital, one of the global coordinators of the IPO, institutional and private investors have already placed 73 billion riyals ($19.5 billion) worth of bids on Aramco shares in the first five days of the offer. Institutional demand looks strong. Demand from individual investors looks less.
Now “greenshoe” option comes to play
Greenshoe option is likely to boost the share sale by 15%. If the Aramco underwriters take up this option it would raise the value of the offer to up to $29.8 billion, comfortably beating Alibaba’s record.
Alibaba itself achieved the world record IPO after its underwriters exercised their own “greenshoe” option to sell an additional 48 million shares.
Western investors hesitation
Saudi Aramco recruited around 27 banks to underwrite or work on the IPO, including some of the biggest names in investment banking such as Goldman Sachs, Morgan Stanley, HSBC, J.P. Morgan and Citigroup, but the bumper fees they were expected to earn are also now likely to be lower.
In Saudi market only QIB (Qualified institutional buyers) with at least $500 million can trade in stock market.
For longterm investors, perhaps the most important factor in valuing Aramco is the oil price, which has been depressed since 2014. The final IPO price will be set on Dec. 5 which is the same day OPEC ministers meet in Vienna to decide whether to extend or even deepen oil production cuts intended to bolster oil prices. Market expectations about that meeting could have a big impact on the oil price and therefore Aramco’s value when trading begins.
However, Indian investors can still invest in the IPO
- Investors can use the government’s remittance scheme (LRS) in which domestic individual investors are allowed to remit $250,000 in a year to other countries. These funds amount can be used for equity and debt investment abroad.
- One can also invest through professional wealth managers like Edelweiss, Invesco Mutual Fund, DSP, Franklin Templeton, among others offer products that help Indian investors get invested into global equities. Investors can also look for stockbrokers who have a license to invest in both India and Saudi and can invest through them as well.