Listing oversubscribed 1.7 times
SAUDI Aramco IPO has attracted bids of $44.3 billion, which probably will be the largest ever when it closes on the 4th of December. This is an oversubscription of about 1.7 times the amount the Saudi government was seeking to raise. Based on the current demand, the IPO is likely to raise about $25.6 billion.
The government was planning to sell maximum of 1.5 percent of the company which is a value exceeding $1.5 trillion but it is short of the intended goal of $2 trillion. About 4.9 million subscriptions were from Saudi individuals, while the remaining subscriptions came from the local region. The bids from Abu Dhabi Sovereign Fund was worth $1.5 billion and from Kuwait $1 billion.
The international markets like USA, Japan and Europe remained on the sidelines, perhaps for later times or after witnessing more future developments. It is important that the Saudi government has started its first step towards globalization, opening of its books, and transparency.
It collected close to $425.6 billion to invest in nonoil projects, which is mainly intended to shift away from oil. It is moving oil revenues away for generating new projects out of the core business or perhaps to settle the state budget deficits. It will be challenging exercise, but the first step has been achieved.
This could be taken as a new rule for other oil producing countries in terms of moving away from oil. Even though there are new opportunities, it is known that all of the Gulf states are fighting for the same cause of diverting away from oil.
Since Saudi government achieved oversubscription of its initial 1.5%, what is the harm in opening the door to increase the level above 1.5% for instance and generate more cash that the government needs? Or will it dilute the Saudi Aramco’s market value?
By Kamel Al-Harami Independent Oil Analyst