Saudi Aramco may be worth as little as $1.5 trillion or even less, well below the target set by the kingdom, according to research sent on Nov. 3 to potential investors by the banks involved in the company’s initial public offering. The research, according to multiple investors who reviewed it, suggests the banks are struggling to pinpoint a precise valuation for Aramco. Some banks offered a huge range—as much as $1 trillion in the case of Bank of America—between their low and high estimates.
The pre-IPO research reports, which the banks use to drum up interest on share sales, suggest Riyadh may struggle to achieve the $2 trillion valuation that Saudi Crown Prince Mohammed bin Salman has publicly desired over the last three years.
The IPO process officially started Nov. 3, with the company filling a so-called intention to float document. The stock is likely to start trading in Riyadh in December.
BofA put the valuation of Aramco at $1.22 trillion as a low case scenario and $2.27 trillion as a high case—a huge gap that’s more than enough to fit the combined market capitalizations of Exxon Mobil Corp., Royal Dutch Shell Plc. and Chevron Corp., the world’s three largest publicly-listed energy companies.
‘Long-Term Analysis’
Goldman Sachs, perhaps the most influential bank on Wall Street, told investors it thought Aramco was worth between $1.6 trillion and $2.3 trillion.“Note that our suggested valuation framework is based on a long-term analysis and it is not linked to a near-term assessment of the likely performance of the company’s shares,” Goldman told investors in its report.
It calculated the valuation using an oil price of $64.50 a barrel for 2019 and $60 a barrel from 2020 to 2023.
HSBC, one of the leading banks through the last two years on the IPO process, put the valuation at between $1.59 trillion and $2.1 trillion. BNP Paribas, which is playing a role in the IPO too, gave investors a rather precise valuation. The French bank said Aramco was worth exactly $1.424394 trillion.
JP Morgan Chase didn’t offer a valuation but gave investors a full set of financial forecasts for Aramco. The bank, which has worked for the kingdom for decades, warned that Aramco needs an oil price of $64.2 a barrel to break even this year after paying its hefty dividend. Post-dividend, the so-called cash break-even would drop below $60 a barrel from 2020 to 2023, the bank said in its report.
Officials for Goldman and HSBC declined to comment. BofA, BNPP, and JPMorgan didn’t immediately respond to requests for comment.
