Saudi Aramco plans $25.6B share sale in biggest ever IPO

Saudi Arabia's state-owned oil company Aramco is laying the groundwork for the biggest ever initial public offering of stock

DUBAI, United Arab Emirates -- Saudi Arabia's state-owned oil company Aramco on Thursday set a share price for its IPO — expected to be the biggest ever — that puts the value of the company at $1.7 trillion, more than Apple or Microsoft.

The company said it will sell its shares at 32 riyals ($8.53) each, putting the overall value of the stake being sold at $25.6 billion.

Aramco, which pumps and produces Saudi Arabia’s crude oil to the world, is floating a 1.5% stake in the company, or 3 billion shares. Trading is expected to happen on the Saudi Tadawul stock exchange on Dec. 11, or by mid-December.

The company is selling 0.5% to individual investors, who are Saudi citizens and residents of Saudi Arabia, and 1% to institutional investors, which can be sovereign wealth funds, asset managers and government-run pension programs.

The pricing of the shares is at the top range of what Aramco had sought. The company had priced it shares ranging from 30 to 32 riyals each, or between 8$ and $8.53 a share.

In the announcement Thursday, Aramco said the offering drew heavy demand.

The company's financial advisers had said earlier that most orders had come from Saudi funds or companies, with foreign investors— including from neighboring Gulf Arab states— accounting for 10.5% of the bids. It was not immediately known what the final figures released Thursday represent and how much of that was generated by foreign investment.

The highly anticipated sale of a sliver of the company has generated global buzz since Crown Prince Mohammed bin Salman first announced plans for it more than two years ago. That’s in part because it would clock in as the world’s biggest IPO, surpassing record holder Alibaba Group Holding Ltd, the Chinese conglomerate and e-commerce company, which raised about $25 billion in 2014.

The kingdom’s plan to sell part of the company is part of a wider economic overhaul aimed at raising new streams of revenue for the oil-dependent country. This as oil prices struggle to reach the $75 to $80 per barrel price range that analysts say is needed to balance Saudi Arabia’s budget. Brent crude is trading at just over $63 a barrel.

Prince Mohammed has said listing Aramco is one way for the kingdom to raise capital for the country’s sovereign wealth fund, which would then use that money to develop new cities and lucrative projects across Saudi Arabia.

Despite the mammoth figures involved in the IPO, they are not quite what the crown prince had envisioned based on the prince's own remarks over the past two years. He’d previously talked about a valuation for Aramco of $2 trillion and a flotation of 5% of the company involving a listing on a foreign stock exchange. There are no immediate plans for an international listing.

Aramco said Thursday it would retain the option of an even bigger offering of a 3.45 billion share sale, representing $29.4 billion.

Despite Aramco’s profitability, the state’s control of the company carries a number of risks for investors. Two key Aramco processing sites were targeted by drones and missiles in September, an attack that was claimed by Iran-backed Houthi rebels in neighboring Yemen but which the U.S. blamed on Iran. Iran denies the allegation.

The Saudi government also stipulates oil production levels, which directly impacts Aramco’s output.

On Thursday, the countries that make up the OPEC oil-producing cartel — led by heavyweight Saudi Arabia— were meeting in Vienna to decide whether to cut down on their production and push up prices of fuel and energy around the world.