Aramco Sets Its Price and Defines Its Limits
Stretched from the beginning, the IPO moves forward but falls short of its original ambitions.
Accepting a lower valuation is part of Aramco’s price of admission to the public markets.
Photographer: Abdulrahman Abdullah/BloombergSaudi Arabia has accepted the reality that the initial public offering of its state oil company, Saudi Arabian Oil Co., won’t generate a trillion-dollar valuation beginning with “2.” Moreover, there is tacit acknowledgement that investors outside the kingdom think Aramco is worth even less than the $1.6 trillion to $1.7 trillion now sought. The transaction is going to fall short of its original ambitions, both strategic and financial.
The $100 billion gulf in the valuation range announced Sunday represents a 6% spread over the midpoint. This is tight for an IPO. Usually, when bankers set very narrow price ranges, it's because they think the shares will sell easily at a higher price and, therefore, perform strongly once listed. That assumption faces a severe test.