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Saudi Aramco is reconsidering its plans for floating around a 5% stake, as first reported Friday by the Financial Times. One alternative option for the oil behemoth would be to sell shares via private placement to sovereign wealth funds or other large institutional investors.
- Why it's the BFD: Because this is supposed to become the largest IPO of all time, with Saudi Arabia expected to put its tens of billions of dollars in proceeds toward a long-term economic modernization and diversification plan. Aramco called the FT report "entirely speculative" and said that its 2018 IPO process remains "on track," but that's not necessarily a denial (plus, we're hearing similar rumblings). Pretty remarkable that Saudi might be getting cold feet this far into the process. Is it really possible that concerns over transparency are just coming to the fore now, or is this more about pre-IPO financing — locking in a few large, long-term holders — than it is about IPO replacement?
- Bottom line: "Score this round one point for the forces of transparency in the capital markets and zero for the forces supporting transparency in Saudi Arabia." — David Goldwyn
- Go deeper: "Because private equity managers are less constrained than public market participants by the forces of no-arbitrage pricing, they have greater discretion to introduce biases into their valuations. Based on an extensive sample of private equity valuations, we find persuasive evidence that private equity managers produce positively biased valuations that appear to be rationalized by information that should not be relevant." — Private equity valuations & public equity performance