How the World’s Most Profitable Company IPO did not make up to Crown’s Wish

On October 15 the 2019, a group of International Investment Bankers delivered some unwelcome news to top executives of Saudi Arabia giant oil Company, Saudi Aramco, which they could not fathom. Aramco executives, who had not foreseen the news coming were perplexed, mesmerized and transfixed furthermore they were furious.

Saudi Arabia was counting on the Initial Public Offering to attract foreign investment to help diversify its economy away from oil. An Aramco Initial Public Offering valuation reduced by forecasts of weakening global demand for oil and geopolitical jitters could hurt that effort.

The bankers gathered at Aramco’s headquarters in Dhahran, reported that global investors weren’t as bullish on the company’s initial public offering of stock as the officials had expected, said two people who were in the room and 3 who were briefed on the meeting. That meant Aramco appeared unlikely to reach the $2 trillion valuation wanted by Saudi Arabia’s crown Prince, Mohammed bin Salman. Instead, a banker from JP Morgan Chase, presenting on behalf of the group, explained that investors viewed Aramco as worth $1.1 trillion to $1.7 trillion.

The previous week Saudi Aramco priced the Initial Public Offering at 32 riyals or $8.53 a share, valuing the company at $1.7 trillion. The offering is expected to raise $25.6 billion – a fraction of the $100 billion that Prince Mohammed Originally imagined.

The company’s shares are set to begin trading Wednesday on Saudi’s stock exchange known as Tadawul. The Initial Public Offering was initially proposed to take place in 2018, but then shelved amid concerns over how highly the company would be valued and where it should list its shares. That year also saw Prince Mohammed came under global condemnation after the brutal killing of Jamal Khashoggi, a Washington Post columnist by Saudi agents in Istanbul. Western Intelligence agencies linked the Crown Prince to the murder but he has denied involvement.

The idea to sell shares in state-owned Aramco, the world’s most profitable company, which for decades has been an engine of the Saudi economy, was foundational to Prince Mohammed’s vision 2030 plan to modernise the economy. JP Morgan, Morgan Stanley and HSBC were brought in to start the long process of preparing the company for sale to public investors.

The result of the offering was not what Saudi Officials had in mind. Rather than being listed in New York or London, shares of Aramco are being sold primarily to investors in Saudi Arabia and neighboring countries. Some of the International banks hired to underwrite the deal have instead taken on secondary roles,with the Initial Public Offering share sale being overseen by two Saudi Arabia banks and British bank(HSBC).

Bankers from Morgan Stanley and JP Morgan, who had been working on the deal for years, were skeptical that investors would be willing to pay much more than they were already suggesting. The bankers argued that Saudi officials in charge of the Initial Public Offering should be given more details on why investors were cooler to the deal than expected.