Aramco Bosses Pitch IPO to Riyadh Investors Already Sold on Deal

(Bloomberg) -- Saudi Aramco’s top executives kicked off the roadshow for their landmark share sale in front of a home audience that had already largely made their minds up about investing in the company.

Speaking to a packed room of more than 300 bankers and local asset managers at the King Abdullah Petroleum Studies and Research Center in northern Riyadh, Aramco Chief Executive Officer Amin Nasser lauded the company’s initial public offering as an “historic day for Saudi Aramco” and “the kingdom of Saudi Arabia.”

Khalid Al-Dabbagh, Aramco’s finance chief, struck the same self-congratulatory tone, calling the IPO “the mother of all deals” and “a paradigm shift when it comes to the capital markets.”

“There has never been a company that can produce results, not just financials, financials and operations, to the extent that Saudi Aramco has done historically,” Al Dabbagh said. “I cannot guarantee the future, but I would venture to say that historic achievement will continue until the end of time.”

For the bulk of the investors in the room, the hyperbole was unnecessary -- most said they had already made up their minds to invest. With the offer price putting Aramco’s maximum valuation at about $1.7 trillion, there should be room for investors to make some money, said one local investor, who like all the people attending asked not to be identified.

Another said that although they would have invested at a $2 trillion valuation from a sense of obligation to support the kingdom’s prime asset, they were much more comfortable with the deal at this lower valuation.

The question they were debating wasn’t the price -- many said they would bid at the top end of the 30 to 32 riyals a share offer range -- but how big an order to place. Most expected the deal, which could raise about $25 billion, to be oversubscribed and only to get a fraction of the shares they bid for. One investor said the firm he works for may bid for twice as many shares as they want to own.

International Investors

Notably absent from the room were any of the international investors that the Aramco IPO was originally intended to attract to Saudi Arabia. Just hours earlier the company surprised the assembled bankers and investors by removing an international offering from the process, meaning Aramco won’t market the deal directly in the U.S., Japan or Canada.

Some investors expressed concerns that Aramco’s presentation didn’t say much about the impact of climate change on the company or the growth of electric vehicles denting demand for Saudi crude. Instead, Aramco focused its investment case on being the world’s cheapest oil producer, and the opportunity to grow its natural gas and chemicals business, particularly once it completes the acquisition of Saudi Basic Industries Corp. next year.

Perhaps the toughest moment came during a brief question and answer session when one investor asked why they should invest in Aramco’s equity when it yields about 4.3%, lower than other oil majors.

Al-Dabbagh said that the dividend yield on oil companies like Shell and Exxon Mobil looked higher because “investors are penalizing them for their inability to grow their production, their reserves.” As a result their share prices are falling, making the dividend yield look higher, he said.

“We should not be compared to a dying breed,” he said, adding that Aramco had “large, considerably significant headroom to grow the dividend.”

To contact the reporter on this story: Matthew Martin in Dubai at mmartin128@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Matthew G. Miller, Will Kennedy

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