Saudi Arabia is pressing wealthy families to subscribe to Aramco

Saudi Arabia will rely on China and its affluent families for the success of Aramco's IPO, with international financial managers reluctant, according to a joint report by several authors published by Bloomberg.

Wealthy Saudi families - some of whom were held at the Ritz-Carlton in 2017 as part of an anti-corruption campaign - are under pressure to contribute huge sums to the company, including the Olayan and Walid bin Talal families, according to the report. Obligations of my family Almajdouie and Turki for the same purpose.

A week after Saudi Aramco was announced on the Saudi bourse, the deal is starting to take shape, as investors with political and strategic goals are accepted, but many international financial managers appear to have chosen not to participate at least until Crown Prince Mohammed bin Salman decides. Reduce his ambitions on the value of the deal.

China's role
China, the world's largest oil importer, could commit up to $ 10 billion through sovereign wealth funds and other state-owned companies, according to people familiar with the situation.

Fund managers remain skeptical, even as Riyadh cut Aramco's target rating from $ 2 trillion to about $ 1.7 trillion, according to a Bloomberg report.

He adds that much is at stake for the crown prince, the kingdom's de facto ruler, and for the 2030 Vision Plan to reform the economy.

A threat
The report notes that Bin Salman proposed to launch Aramco in 2016 in an attempt to raise funds for the sovereign wealth fund, but he quickly surrounded himself by demanding a valuation of $ 2 trillion for the company, a figure based on comparing Saudi Arabia's vast oil reserves with those of international oil companies. Great as Exxon.

Analysts have always challenged Bin Salman's calculations in this context, he says, such as measures such as cash flow and dividend yield are key to valuation.

According to the report, Torbjorn Saltfeldt, senior analyst for the Middle East and North Africa at Verisk Maplcroft in a note that bin Salman will be fully aware that focusing only on valuation threatens to harm the symbolic value of the IPO.

Pressure and fears
Pressure on wealthy citizens to invest in Aramco in an effort to strengthen the company's valuation will only reinforce concerns about governance, Saltfeldt said.

Fund managers are concerned that the government, which may sell only about 2 percent of Aramco, will not give enough opinion to minority shareholders, the report says.

He also notes that regional geopolitical risks - confirmed when Aramco facilities were attacked in September - are also affecting investor accounts.

Lowest rating
In another separate report published by Bloomberg, Saudi Crown Prince Mohammed bin Salman may have lowered his Aramco rating to $ 1.7 trillion from the $ 2 trillion he had been betting for years, as the company prepares for an initial public offering.

Despite this downgrade by Bin Salman, some of the world's biggest investors say it has not gone far enough.

Fund managers, including Allianz Perrstein and Frankfurt-based Union Privatfunds Investments, believe Aramco is worth less than $ 1.7 trillion, which is said to be ready to accept.

These companies are concerned that the Saudi government, which may sell only about 2% of Aramco, will not give enough opinion to the minority shareholders, the report adds.

While most of the money is expected to come from Saudi and Chinese investors, a failure to attract foreign exchange or a drop in Aramco's share price when trading begins in Riyadh on December 11 could backfire on bin Salman.

The IPO is a key part of bin Salman's grand vision to open Saudi Arabia's economy to foreign investment and reduce its dependence on oil.

Bloomberg cites Slava Priusov, a senior analyst at Allianz Birsten in New York, saying Aramco is worth well under $ 1.5 trillion, adding that a bank analyst who arranged the stock sale failed to convince him at a meeting last Wednesday.

Aramco's lowest valuation was $ 1.2 trillion, and non-underwriting Sanford Bernstein said the fair valuation was between $ 1.2 trillion and $ 1.5 trillion, based on metrics such as dividends and profit forecasts.

The IPO funds will go to the Public Investment Fund, the sovereign wealth fund that leads bin Salman's plans to diversify the economy.