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  HOME | Oil, Mining & Energy (Click here for more)

Saudi Aramco’s IPO Subscription Ends Amid Uncertainty

DUBAI – Saudi Arabia’s state-run oil giant Saudi Aramco closed subscriptions on Wednesday for institutional investors, amid uncertainty for traders on the prospects of oil.

The oil company, meanwhile, has managed to secure regional investors as the kingdom has asked its regional allies to support the sale.

Individual and institutional investors started bidding for shares in the company on 17 November, with a plan to generate up to $25.6 billion.

Aramco offered 1.5 percent of its shares as part of its IPO, 0.5 percent for individual investors, while the remaining 1 percent is for institutional investors.

Aramco has so far secured subscriptions – an offer to a buyer to purchase upcoming stocks – worth $38 billion, 2.3 times higher than the proposed sale.

The individual investors had placed orders worth $12.6 billion before the end of their offering period on Thursday.

Countries like Kuwait and the United Arab Emirates might be behind the subscription success in Aramco’s IPO institutional tranche as they, according to local media reports, invested $1 billion and $1.5 billion, respectively.

However, analysts believe this move is more of a gesture of solidarity and good intentions than an investment decision.

Neither entities have announced the investment publicly, while lead manager Samba Capital has not given details about subscribers.

“It looks likely that Aramco will reach its target for the initial phase of the IPO, but the scaled-back process has lowered expectations,” Robert Mogielnicki, resident scholar at the Arab Gulf State Institute in Washington, told Efe.

He added that the source of investments in Aramco’s IPO is less important than investors’ commitment in the long run.

“Short-term investors willing to sell their shares at the first indication of trouble are of little use for Aramco,” Mogielnicki went on.

Tyler B. Parker, an analyst at Gulf State Analytics, explained that “Investors from the United States, Europe, and Japan have raised concerns over the transparency of Aramco budget figures.”

Despite investments, there are concerns over the stability of Saudi oil production and transportation and what it means for international oil markets.

Aramco is facing risks such as regional insecurity, fluctuations in oil prices, reduced demand for Saudi crude owing to the introduction of new technologies and regulations, and changing perceptions of the oil and gas industry as a result of climate change.

Saudi Arabia has been under scrutiny after last year’s arrest of several activists and the killing of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.

Aramco’s IPO is part of the Saudi Vision 2030 program, which was unveiled by Saudi Crown Prince Mohammad bin Salman and is aimed at reducing the kingdom’s dependence on oil and diversifying the economy.

Mogielnicki pointed out that the 2030 strategy to transform Aramco into a “global industrial conglomerate” may mitigate some of the ongoing threats, but it will inevitably introduce new risks.

“Saudi officials hope to move beyond the Aramco IPO and make cost-efficient, concrete progress on key national development initiatives,” he concluded.

 

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