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President and CEO of Saudi Aramco Amin Nasser (left), and Aramco's chairman Yasir al-Rumayyan (right).

Saudi Arabia's decision to abandon a $2 trillion valuation for the Aramco IPO underscores hurdles facing Crown Prince Mohammed bin Salman's plans to use the company as a tool for diversifying the kingdom’s crude-reliant economy.

Driving the news: ICYMI, over the weekend Aramco announced preliminary pricing on the offering that signals an estimated valuation of the world's largest oil-producing company in the $1.6–$1.7 trillion range.

  • They also announced that just 1.5% of the company — or 3 billion shares — would be offered, and it's not clear when or if there will be a subsequent sale that would approach the 5% initially envisioned.

What's new: There are other signs of hurdles facing the effort. One is that it's increasingly clear that it's essentially a regional affair.

  • "Saudi Arabia has called off plans to formally market shares of its state oil company outside the kingdom and other Gulf countries ahead of its long-awaited initial public offering," the Financial Times reports Monday.

By the numbers: The initial pricing estimate announced Sunday of 30–32 Saudi riyals, or roughly $8–$8.50 per share, on the kingdom's domestic exchange would bring an IPO in the $24–$25.6 billion range.

  • It might be the world's largest, depending on where it falls, but it's far from MBS' initial goals. The final offer price will be announced on Dec. 5.

AB Bernstein analysts, in a note, said the proposed $1.6–$1.7 trillion valuation is "above our estimates and above what many institutional investors we have spoken with would deem to be reasonable."

But, but, but: However, they also note that cornerstone investors, sovereign wealth funds and local investors could still enable them to achieve the target, given the "strategic interests" of those parties.

The intrigue: Bernstein also points out that the valuation implies a lower dividend yield than other oil majors. Bloomberg analysts Chris Hughes and Liam Denning similarly note the valuation would put the yield behind Shell, BP, Total and others.

  • "True, those companies don’t have Aramco’s supercharged profitability. On the other hand, they don’t have to fund a country with their earnings," they write.

The big picture: Despite the pared-back ambitions, an S&P Global Platts analysis published Monday points out that finally launching the IPO will still bring a big cash infusion.

  • "The pressure is now on for Crown Prince Mohammed bin Salman to deliver on his vaunted Vision 2030 roadmap and transform the change-resistant kingdom into a dynamic, diverse economy that can persevere once the world has moved beyond oil," they report.

Go deeper:

Go deeper

Dion Rabouin, author of Markets
20 mins ago - Economy & Business

Clash of the central bankers

Photo Illustration: Eniola Odetunde/Axios. Photos: Bloomberg, Samuel Corum (Stringer)/Getty Images

While Fed chair Jerome Powell is brushing off the seismic rise in government bond yields and a corresponding decline in stock prices, a group of central bankers in the Pacific are starting to take action.

Driving the news: Bank of Japan governor Haruhiko Kuroda told parliament on Friday the BOJ would not allow yields on government debt to continue rising further above the BOJ's 0% target.

Biden expresses support for Amazon workers' union vote in Alabama

Photo: Joe Raedle/Getty Images

President Biden expressed support for a union vote by Amazon warehouse workers in Alabama in a two-minute video posted on Twitter Sunday, though he did not name the tech giant specifically.

Why it matters: A vote by workers at the Bessemer, Ala., warehouse to join the Retail, Wholesale and Department Store Union would make the facility the first Amazon warehouse to unionize in the U.S., per NPR. The election will run through March 29.

Dion Rabouin, author of Markets
2 hours ago - Economy & Business

Miami mayor: Bitcoin's appeal is that governments can't manipulate it

Miami Mayor Francis Suarez is pushing to make bitcoin a part of his city's economic future, and in an interview with "Axios on HBO," he pushed back against the economic orthodoxy of people like Treasury Secretary Janet Yellen who say it's a bad idea.

Why it matters: Miami's inclusion of bitcoin as a way to pay city employees or as part of the city's emergency cash holdings, as Suarez has proposed, would add legitimacy to the cryptocurrency and further entrench it in the U.S. economic system.

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