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.
Ultimately, investors will decide the valuation. Chairman Yasir al-Rumayyan said the size of the stake being sold and the valuation would be decided after the book building process is complete. The offering is expected to rely heavily on local investors.
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.