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Opinion
Chris Hughes and Liam Denning

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.

Accepting a lower valuation is part of Aramco’s price of admission to the public markets.

Photographer: Abdulrahman Abdullah/Bloomberg

Saudi 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.