A day before Aramco is to announce the final price of the shares it will list on the Saudi stock exchange, the list of bad news for the company got longer. A survey among fund managers has shown that most of them believe that the company is overvalued by up to a third.
The survey was conducted among 31 asset managers holding assets of $3.8 trillion by Bernstein and reported by Fortune. Its conclusion supports what a number of observers have been saying for months now: that interest in Aramco shares among international investors is unlikely to be great because of too many uncertainties, including a lack of the transparency that international investors are accustomed to.
When Aramco last month announced a price range for its float, the mean in it gave the company a valuation of some $1.7 trillion. That’s $300 billion less than the original target valuation that Crown Prince Mohammed was after for Aramco. It also would mean IPO proceeds of $100 billion should 5 percent be floated.
However, the original plan has changed. Aramco will offer 1.5 percent of its stock next week, and it will offer them almost exclusively to Saudi investors. That’s after talk that Aramco could list more than the originally planned 5 percent, and up to 10 percent.
Things can change fast in the world of oil and they changed fast and for the worse for Aramco two months ago, when its oil field and a processing plant were struck with drones and missiles. The September 14 attacks added another potential problem to the list of problems they might have had with the Saudi company: security of supply. Meanwhile, banks and analysts continued to argue how much Aramco was worth.
Goldman Sachs, one of the organizers of the IPO, has valued Aramco at even more than Riyadh: $2.3 trillion. Others, however, have valued it at just $1.2 trillion. Between these extremes, there is a host of other figures. None of them matter, however, if there is no one to buy the shares.
Fortunately for Aramco, there are a lot of people willing to buy its shares. Last week Aramco said it had attracted bids worth $44.3 billion by the deadline for retail investors to express interest in the listing. And that’s just retail investors. The company is also counting on local and regional institutional investors.
The Abu Dhabi Investment Authority—the country’s sovereign wealth fund—will reportedly buy shares worth $1 billion. The Kuwaiti sovereign wealth fund has, according to unnamed Reuters sources, also committed to $1 billion worth of shares. Other sources said both commitments were even higher, at $1.5-$2 billion each.
That, however, makes up for a tiny portion of the proceeds Aramco is eyeing. This means it will have to depend overwhelmingly on retail investors or urgently find institutional ones that are not too concerned about transparency. The latter is highly unlikely to happen just days from the official listing unless Riyadh is hiding a couple of investors up its sleeve. This means it will likely have to rely overwhelmingly on retail investors.
These are retail investors who are taking on loans to be able to afford the purchase of Aramco shares. As such, they are also investors who will start selling their shares the moment the price rises after the listing, if it does. And the moment the selloff starts will be the moment the share price will drop. Now that may be a good time for international investors to buy into Aramco. After all, it is still the biggest integrated oil company in the world with the biggest reserves, possibly the biggest production capacity, and a lot of downstream operations, too. What’s not to like?
By Irina Slav for Oilprice.com