As Saudi Aramco Prepares IPO, Investors Speculate on Ultimate Value

Fund managers and institutional investors are split on the expected value of Saudi Aramco, with a majority saying the company will have a market capitalization of $1 trillion to $1.5 trillion when it sells shares to the public next year, Reuters reports, citing a survey of fund managers conducted by regional investment bank EFG Hermes.

That figure is lower than some have projected for the company. As Bloomberg noted last summer, based simply on its oil reserves and using a conservative valuation of roughly $10 per barrel, Aramco could be worth more than $2.5 trillion. Saudi leaders, including Deputy Crown Prince Mohammed bin Salman who oversees the kingdom’s economic policy at the Council on Economic and Development Affairs, hope the company achieves a higher valuation at $2 trillion.

Khalid Al-Falih.

Khalid Al-Falih.

The IPO is the centerpiece of the Saudi government’s ambitious Vision 2030 plan.

Last month, Saudi Aramco asked JPMorgan Chase & Co. and Morgan Stanley to assist with its upcoming initial public offering, and may also call on another bank, HSBC, with access to Chinese investors, according to separate reports in Reuters and the Wall Street Journal, which cited unnamed sources. Those banks join Moelis & Co., a boutique firm, to participate in the listing, which is expected to be the world’s biggest IPO worth some $100 billion.

According to the EFG Hermes survey, conducted at an investment conference organized by the bank in Dubai, 39 percent of respondents predicted the market would value Aramco at between $1 trillion and $1.5 trillion. 36 percent expect a valuation below $1 trillion, and 24 percent a figure above $1.5 trillion, the bank said. EFG Hermes said it polled 510 international fund managers and investors from 260 institutions at the conference, as well as 147 other companies. It did not say how many of them had replied to the question on Aramco, according to Reuters.

The IPO is the centerpiece of the Saudi government’s ambitious Vision 2030 plan.

The IPO is the centerpiece of the Saudi government’s ambitious Vision 2030 plan.

As the company moves forward toward an IPO, there are many variables that may affect Aramco’s value. A report in Bloomberg today highlights potential investor interest in Aramco’s expansion into renewable energy opportunities. At the start of this year, Energy Minister Khalid Al-Falih announced a target to invest $30 billion to $50 billion in renewables, calling for 10 gigawatts of solar and wind power by 2023.

And, as Reuters notes, key decisions are expected to be made by Saudi authorities in coming months, including the tax rate that Aramco will pay as a public company, and the portion of Aramco’s huge and diverse array of assets that is included in the listed entity.