Saudi Aramco beats target as retail subscriptions close

Subscriptions for Saudi Aramco's IPO reach 166.03 billion Saudi riyals, with 47bn riyals from retail investors

Saudi Aramco, the most profitable commercial entity in the world, recorded a $68bn profit for the first nine months of the year. Reuters

Subscriptions and bids for Saudi Aramco's initial public offering reached 166.03 billion Saudi riyals (Dh162.57bn) by Friday, exceeding its target of 96bn riyals, according to lead arrangers Samba Capital and NCB Capital.

In the first 12 days, institutional bids reached 118 billion riyals at 5pm Saudi time on Friday, with book-building set to close on December 4.

More than half, or 54 per cent, of institutional bids came from Saudi corporate investors, with Saudi funds, DPMs (Discretionary Portfolio Managers/Management) and authorised persons accounting for 24.1 per cent. Saudi-based government-related entities accounted for 11.1 per cent, with non-Saudi investors, including those from the GCC, qualified investors and swaps accounting for 10.5 per cent.

Retail subscriptions, which closed on Thursday evening, reached 47 billion riyals, or 1,481,613,280 shares.

The high subscription rates from retail investors was an indication of success and a "signal of confidence" in a company that has "unrivalled standing globally in the energy sector", said Samba Capital deputy chairwoman Rania Nashar.

Saudi Aramco is the most profitable commercial entity in the world, beating the likes of Apple, Google and Amazon. It recorded a $68bn profit for the first nine months of the year on revenue of $217.1bn. A debut $12bn bond issued by the company in April was more than ten-times oversubscribed.

The oil giant, which has one of the highest revenue streams in the world, accounts for one in every eight barrels of crude. In 2018, the company produced 13.6 million barrels per day of oil equivalent, including 10.3 million bpd of crude.

Saudi Aramco kicked off the much-anticipated IPO process on November 3. It set a price range of 30-32 riyals per share, giving the company an indicative valuation of $1.6 trillion-$1.7tn. The final price is set to be announced on December 5, after bids fron institutional investors close.

“The success of the retail tranche is mirrored in the institutional tranche where bids reflect strong demand coming from across the spectrum of investor categories, reflective of Saudi Aramco’s compelling investment proposition.," NCB Capital chief executive Sarah Al Suhaimi.

"This institutional demand also speaks well to the depth and diversification of the Saudi capital markets and its investor base," she added.

A note on the Aramco IPO published by Dubai-based fund manager stated that once floated, Saudi Aramco would comprise between 9.3 per cent to 9.9 per cent of the Tadawul All-Share index and is likely to attract foreign inflows of between $3.2bn-$3.4bn from funds tracking MSCI and FTSE Russell indexes.

It said the stock is likely to pay a minimum dividend yield of 4.4 per cent, which is 140 basis points above 10-year sovereign yields.

"Saudi Aramco’s stock is a dividend haven," said the company's chief executive, Zachary Cefaratti. "The government of Saudi Arabia is providing dividend prioritisation of $75 billion from 2020-2024, which effectively offers investors embedded put protection on the price of oil.

"Further to this, investors in the stock still have the opportunity to benefit from capital appreciation to the upside if oil prices rise," he added, although he said additional royalty payments to the government on higher prices meant this upside is effectively capped.