Saudi Aramco has valued its IPO at USD1.2-1.8tn. This is well below the government’s expectations but now realistic with regards to the market. We think that the deal can possibly achieve the USD1.5tn mark but would be surprised to see more. The listing size has also been reduced to 1.5% as opposed to originally 3% and later 2%. Reportedly international demand is weak to a point that the company has scaled back its roadshow. This unsurprising and weak interest by global institutions had transpired before but cutting out the U.S., home to world’s most important investment institutions, is extremely surprising. While the low break even cost of production and the deal sweeteners such as the dividend have made it more attractive, there are issues of trust and governance. To this adds a short term and structural oil price outlook that is less than attractive. As we have been expecting, it will most likely be domestic demand and a few sovereign wealth funds that will fill the book. Pricing is on 5 December.
