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Aramco IPO Set to Become the World’s Largest. Most of the World Isn’t Buying In. - Barron's

Saudi Arabia’s public offering of shares in state-controlled oil company Aramco is on track to be the largest ever, with investors submitting bids for $44.3 billion, The Wall Street Journal reported. Based on current demand, the IPO is likely to raise about $25.6 billion, which would beat the record $25 billion raised by Alibaba (ticker: BABA) in 2014. Saudi Arabia is planning on selling 1.5% of the company to investors, with a valuation likely to exceed $1.5 trillion. That will fall short of the $2 trillion that Crown Prince Mohammad bin Salman had previously set as a goal.

Institutional investors can submit bids until Dec. 4 before Aramco sets the valuation. Trading is expected to begin on Dec. 11.

The bulk of the money appears to be coming from inside the country, with 4.9 million people in Saudi Arabia registering to buy shares. Saudi Arabia plans to sell 0.5% of the company to those individuals, with the rest going to corporations inside the country or outside companies that have registered with Saudi Arabia—so-called qualified foreign investors.

Aramco decided to list the stock on the local Tadawul exchange, which has much less liquidity than exchanges in the U.S. and Europe. Aramco canceled a road show in London earlier this month, making it more difficult for foreign investors to get information.

U.S. retail investors won’t be able to get in on the offering, but that’s probably a good thing, as Barron’s has previously argued. Aramco’s valuation looks rich given its prospects and risks. And investors’ gains will depend heavily on the price of crude. Saudi Arabia will take a royalty rate based on Brent crude prices. If prices are below $70, the state will get a 15% royalty. But that rate goes to 80% should Brent jump over $100—meaning there will be little in the way of profits for other investors. As of Friday afternoon Brent was trading at $62.42, down 5.1% for the day.

At a valuation of more than $1.5 trillion, Aramco’s dividend yield will be about 5%. That’s a nice dividend, but other oil companies offer even better yields, with Royal Dutch Shell (RDSA) offering a 6.5% rate at current prices, for instance.

Write to Avi Salzman at avi.salzman@barrons.com

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Aramco IPO Set to Become the World’s Largest. Most of the World Isn’t Buying In. - Barron's
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