The Saudi Aramco IPO
As part of the Kingdom of Saudi Arabia’s privatization plan, Saudi Aramco, the country’s largest and most valuable state-owned oil company is set to make its debut in the capital market. The Saudi government intends to offload 5% of the company’s stake in a 2018 listing. Accordingly, Saudi Aramco may list in part on the local bourse Tadawul (KSA) along with a second listing internationally. The government is currently considering international listing venues in the US (SPY), the UK (EWU), and Asia (AAXJ) for the international part of the public offering.
Could LSE win favor?
On Tuesday, April 4, UK Prime Minister Theresa May arrived in Saudi Arabia (GULF) (GAF) on a two day visit, her second since Brexit, with the agenda of boosting trade with the oil-rich kingdom. The CEO of the London Stock Exchange Group, Xavier Rolet also accompanied her on her visit. Market speculation holds that Rolet’s motive in accompanying May on her visit was to lobby for the Saudi Aramco IPO listing on the London Stock Exchange in the UK (EWU).
IPO valuation to rise with cut in tax rate
Market opinion on Saudi Aramco’s IPO valuation remains divided. While the Deputy Crown Prince Mohammed bin Salman has said the IPO will value Aramco at a minimum of $2 trillion (about 2/3rd the size of the London Stock Market); analysts see the valuation falling somewhere between $1 trillion and $1.5 trillion. As outlined in our earlier series, there are a number of issues affecting the valuation of the Saudi Aramco IPO currently.
On March 27, the Saudi government cut the tax rate for Aramco from 85% to 50%. The high tax rate (of 85%) had been one of the key considerations for analysts valuing the oil giant. A lower tax rate leaves more room for dividend payments, and therefore, should lend more appeal to the company’s stock, from a shareholder perspective.