Is The $2 Trillion Aramco Target Still Possible?

The Saudi government is pressuring local state investment funds and wealthy individuals and families to buy Aramco shares, an unnamed source familiar with developments told The Financial Times.

Aramco’s shares officially started trading on the Tadawul exchange today and quickly reached the maximum allowed price rise of 10 percent. According to the sources, Crown Prince Mohammed still wants to push the company’s value to the target $2 trillion that has been questioned by investment banks, fund managers, and, not to put too fine a point on it, Aramco itself, which announced a share price for the IPO that translated into a valuation of $1.7 trillion for the whole company.

The pressure tactic towards potential buyers is not new. In a September report, The Financial Times again cited sources that said Riyadh had approached some of the wealthiest families in the Kingdom to pressure them into becoming anchor investors in the IPO. In the report, words including “strong-arm”, “coerce” and “bully” were used to describe the way Saudi Arabia’s government was trying to secure the anchor investors for what many see as the deal of the century in oil and the largest IPO ever.

Then, just a few days before the announcement of the Aramco share price, a survey among 31 fund managers with assets under management of $3.8 trillion found most of them believed the Saudi giant was overvalued by as much as a third.

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There seem to be enough retail investors willing to buy Aramco shares, however. In late November, Aramco said it had attracted bids worth $44.3 billion by the deadline for retail investors to express interest in the listing. 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. 

Now, Riyadh has set its sights on institutional investors specifically, which is understandable as retail investors would likely sell their shares as soon as the price inches up.

“All the focus now is how to reach $2tn,” one of the FT sources said. “They’ve been told to keep some powder dry for buying in the secondary market.”

By Irina Slav for Oilprice.com

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