Why Saudi Aramco’s IPO Is No Ordinary Share Sale

Saudi Aramco’s much heralded and oft-delayed initial public offering was eventually completed -- albeit in a scaled-down version of the original plan by Saudi Crown Prince Mohammed bin Salman. There was no grand opening on the London or New York stock exchanges for the oil giant -- trading is restricted to the Saudi bourse and the shares weren’t even marketed to most money managers. Investors were able to purchase just 1.5% of the world’s most profitable company -- about half what was previously considered. Even so, Aramco’s IPO became the biggest in history.

Because international investors balked at the valuation. The IPO is a key element of Prince Mohammed’s vision to wean the kingdom’s economy away from its dependence on oil. He caused something of a shock in 2016 when he announced the plan together with his valuation of $2 trillion. At the time, that would have made Aramco about four times the size of Apple Inc., the world’s biggest company by market capitalization. (Apple’s value has since soared to more than $1.3 trillion.) Although a reduced valuation of $1.7 trillion was finally settled upon, many global money managers still thought that was too high. One survey pointed to a “fair” range of $1.2 trillion to $1.5 trillion.