Japanese Investors Likely To Snub Saudi Aramco's IPO

Saudi Aramco unveils plans to kick off blockbuster float next week

Saudi Aramco unveils plans to kick off blockbuster float next week

Aramco said the IPO program was postponed because it started a procedure to obtain a 70% stake in petrochemicals manufacturer Saudi Basic Industries Corp 2010.SE .

Many Saudis appear to be tapping lenders and selling personal assets to raise money to invest in the share sale.

Saudi Arabia will allow investors to start bidding for shares in Saudi Aramco from 17 November 2019 and the targeted percentage of offer shares allocable to individual investors will be up to 0.5 per cent of the shares.

In its push for transparency, the secretive company's prospectus also highlighted risks including the potential for terrorist attacks, the possibility of antitrust legislation and climate change concerns that could reduce global demand for hydrocarbons.

Earlier this week, Bloomberg reported that various Chinese state-held companies and funds are negotiating possibly investing up to US$10 billion in Aramco's initial public offering.

Company analysts have valued it between $1.1tn-$2.5tn.

But bankers working on the deal have said Aramco's valuation is between $1.3 trillion and $1.7 trillion.

Similarly, the Saudi government will not offer any additional shares during the 12-month period after listing but retains the right to sell to foreign governments or investors affiliated with foreign governments.

The record announcement was anticipated on October 20 but had been postponed after consultants said they had additional time to lock cornerstone investors three sources told Reuters.

"In terms of scale and quality of Aramco's assets, they've got the world's best, bar none", said Dwight Anderson, the founder of hedge fund Ospraie Management.

Aramco earned net income of $68.2bn in the first nine months compared with $83.1bn a year ago.

Initial hopes for a 5 per cent IPO on domestic and global bourses were dashed previous year when the process was halted amid debate over where to list Aramco overseas.

However, a 1 percent purchase would'just' increase approximately $15 billion for Saudi coffers, significantly less than the $25 billion produced by Chinese e-commerce giant Alibaba in its record-breaking IPO at 2014.

Bankers have told the Saudi government that investors will likely value the company at around United States dollars 1.5 trillion, below the USD 2 trillion valuation touted by Prince Mohammed when he first floated the idea of an IPO almost four years ago.

Yet, Japanese investors are unlikely to jump into the listing of the Saudi oil giant because they have to explain to their shareholders why they consider investing in Aramco's IPO a good idea, Tsutomu Sugimori, president at Japan's largest refiner JXTG Holdings, said at an earnings call.