Kuwait to Add $1 Billion in Saudi Aramco IPO, but Is It Really Worth It?
It seems Kuwait’s government could insert at least $1 billion in the initial public offering of Saudi Arabia state-owned oil company, Saudi Aramco. Sources familiar with the situation said that the kingdom asked its regional partners to support the share sale valued as high as $2 trillion.
Until recently, the Kuwait Investment Authority had been pretty much unwilling to commit significant funds to the IPO. However, the government explained that a stake was in the country’s strategic interest, the sources claim, asking not to be identified discussing a confidential matter. Kuwait communicated its decision to Aramco on Monday.
Kuwait’s potential move follows the one of Abu Dhabi, a member of the United Arab Emirates whose money comes mostly from its numerous oil fields, and that decided to invest $1.5 billion in Aramco. Last month, Chief Executive Officer of Saudi Aramco, Amin Nasser, and other executives from the company talked about the IPO with officials from the Kuwait Investment Authority’s (KIA) but they haven’t publicly released what was the conclusion of the talks.
To have another major investor from the Gulf region is definitely a comforting situation for Saudi Arabia after its plans to market the IPO globally were deserted. The company was pretty much sure that it will succeed in its goal to attract sovereign investors. Among those investors, Aramco counted to get a big boost from China as well. However, such huge commitment still hasn’t been confirmed even though last months there were media reports that state-owned entities from China were considering an investment of up to $10 billion in Saudi Aramco’s IPO.
Some of the parties that were allegedly negotiating about an investment into the Aramco IPO include the Chinese government’s investment fund called Silk Road Fund, state-owned oil and gas enterprise Sinopec Group and sovereign wealth fund China Investment Corp. However, the company did reveal that last month it signed crude oil supply agreements for the year 2020 with five Chinese companies.
The deals are said to “solidify the Company’s position as China’s top crude supplier”. Vice President of Marketing, Sales and Supply Planning at Aramco, Ahmed Al-Subaey, said that agreements show “Chinese customers’ continued faith in Saudi Aramco’s supply stability and operational excellence,” adding that the contracts show company’s “continued commitment to the world’s fastest-growing oil market.”
Saudi Arabia company said it would be selling a 1.5% stake in the company, or approximately 3 billion shares, at an indicative price range between 30 Saudi riyals ($8.00) to 32 riyals per share. The institutional part of the book currently has bids totaling 144 billion riyals ($38 billion), covering that part of the proposed sale 2.3 times.
From the company, they said that the institutional bids received during the first 12 days of the book-building period, which continues until December 4, now stand at more than 118 billion riyals (US$31.5 billion).
However, this IPO announced as the biggest ever may be too much. The thing is, if you look at the company’s sheets, it recently reported a decline in net profit of 18% to $68 billion for the nine months that ended in September from the same period a year ago. Last year oil prices were higher and not just that but this year, Aramco was the subject of drone attacks that wiped out about half of its daily crude production. And, while oil price volatility comes as a normal constant in this sector, these kind of attacks raise the risk premium on those new shares.
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