Saudi Aramco has been making its rounds, as it pitches Abu Dhabi investors… the other day, the execs met some key officials at the Abu Dhabi Investment Authority to discuss a potential investment…
… one that could raise more than $25B.
News just broke that Abu Dhabi is only planning to invest $1.5B in Aramco’s initial public offering (IPO). That’s a signal the company is having a tough time drumming up demand.
The company has canceled roadshows for its listing outside of its locality, simply because there isn’t a whole lot of interest from U.S. institutional investors. Heck, it’s not just American institutions who are afraid to invest in the company…
… there are talks it’s failing to fetch some investments from Abu Dhabi and other Middle Eastern countries.
The valuation is “too rich”. Saudi Aramco is looking to sell 1.5% of the company, with a valuation of $1.6 – $1.7T… not only that, but there’s a lot of volatility in the sector (something investors hate).
However, there’s one question everyone has on their minds… can we trade Aramco?
Aramco is Debuting Soon, and We’ve Missed Our Shot
Sorry to say, but if you’re not in the Gulf or Saudi Arabia… you can’t get in on Aramco’s highly-anticipated IPO.
The company has closed off investments to foreign investors due to weak demand, as many are starting to see all the risks associated with the IPO.
- Oil prices are going through large swings
- There’s political uncertainty on the table
- The valuation is too high (this company would be worth more than Apple!)
- The “smart money” doesn’t even want to touch this IPO.
So what’s the real story behind Aramco’s move to forgo listing on the NYSE?
Well, even though the company may look to market its IPO to American investors down the road… there are still a lot of hoops Aramco needs to jump through… and there are a number of ways for the company to actually list its shares.
- Aramco could circle back and hit the drawing board again… maybe it will reduce its valuation to attract American investors
- A direct listing. Rather than going through an investment bank, the company will directly market its shares to the public.
- Change the share structure and use either the IPO process or direct listing.
It’s quite clear whatever Aramco is offering is not attractive…
It’s not really “stock” when you delve into the 600-page prospectus. In fact, the prospectus is ridden with clues as to why one wouldn’t want to invest in the company.
For example, the share structure of Aramco is more or less similar to that of a bond. It’s pretty much an IPO dressed up as a bond.
Basically, the company will offer dividends as the primary form of return… and with billions of shares outstanding, there will probably be little to no movement in the stock price.
Not typical of what investors want an IPO to be.
I think before we can even think about trading Aramco, the company has to go through some major changes to attract foreign demand. Whatever Aramco decides to do… I’ll be ready.
In the meantime, there are a few IPOs I have on my radar… and I’ll be sure to tackle them in the first phase one the IPO lifecycle. Click here to see how you can trade some of the hottest stocks with ease.