Saudi Aramco expected to be valued around $1-1.5 trillion

Fund managers and institutional investors expect oil giant Saudi Aramco to have a market capitalisation of $1 trillion to $1.5 trillion when it sells shares to the public next year, a survey by regional investment bank EFG Hermes showed on Monday.

The valuation of Aramco, the world’s biggest oil firm, has been the focus of intense speculation since the Saudi government last year announced plans to sell up to 5 per cent of it and list the shares in Riyadh and at least one foreign stock exchange.

Deputy Crown Prince Mohammed bin Salman, who oversees the kingdom’s economic policy, has said the sale is expected to value Aramco at $2 trillion or more, making it by the far the world’s largest initial public offer.

The EFG Hermes survey, conducted at an investment conference organised by the bank in Dubai, found 39 per cent of respondents predicted the market would value Aramco at between $1 trillion and $1.5 trillion.

Thirty-six per cent expect a valuation below $1 trillion, and 24 per cent a figure above $1.5 trillion, the bank said.

EFG Hermes said it polled 510 international fund managers and investors from 260 institutions at the conference, as well as 147 other companies. It did not say how many of them had replied to the question on Aramco.

The company’s ultimate valuation will depend on decisions that are expected to be made by Saudi authorities in coming months, including the tax rate that Aramco will pay as a public company, and the portion of Aramco’s huge and diverse array of assets that is included in the listed entity.

Saudi officials have given no concrete indication of how they will decide these questions, so any estimate of Aramco’s value remains tentative.

The EFG Hermes survey suggests a higher valuation than some estimates by private analysts. Last year Foreign Reports, a Washington-based oil industry consultancy, calculated Aramco could have a market value of $250-460bn, excluding the value of refining assets and guaranteed access to oil and gas.

Aramco’s valuation is important for Saudi Arabia because it will determine how much money the government makes from the IPO and the size of foreign fund flows that are expected to enter the country to buy the shares.

The huge IPO looks likely to strengthen the case for Saudi Arabia to join the emerging markets indexes of international index compilers such as MSCI, a step which could attract tens of billions of dollars of fresh foreign money to the kingdom.

The EFG Hermes survey found 16 percent of respondents expected Saudi Arabia to join MSCI’s emerging markets index next year, 34 per cent in 2019, 22 per cent in 2020 and 27 per cent at a later date.