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(Bloomberg) -- Saudi Arabia put a valuation on state-owned oil giant Aramco of between $1.6 trillion and $1.71 trillion, well below the $2 trillion target sought by Crown Prince Mohammed bin Salman since he first mooted an initial public offering in 2016.Aramco will sell just 1.5% of its shares on the the local stock exchange, the Tadawul, somewhat less than expected. At the lower end of the price range, the offer would fall short of a record, coming in just below the $25 billion raised Alibaba Group Holding Ltd.’s in 2014.While the target valuation will make Aramco the world’s biggest public company by some distance, overtaking Apple Inc., the plans are a long way from Prince Mohammed’s initial aims: a local and international listing to raise as much as $100 billion for the kingdom’s sovereign wealth fund.In a sign Aramco will rely heavily on local investors after receiving a tepid response from international money managers, the shares won’t be marketed in the U.S. and Canada as originally planned. Japan’s also off the list.Aramco Chief Executive Officer Amin Nasser kicked off the IPO’s final phase at a presentation for hundreds of local fund managers in Riyadh. The roadshow is expected to move on to Europe this week.Nasser called it “a historic day for Saudi Aramco, for Tadawul and the kingdom of Saudi Arabia,” he said. “We are excited about the transition to being a listed company.”The final version of the prospectus didn’t identify any cornerstone investors, though the company is still in talks with Middle Eastern, Chinese and Russian funds.Aramco will need to lean heavily on local wealthy families, some of whom had members detained in Riyadh’s Ritz-Carlton hotel during a so-called corruption crackdown in 2017, to get the job done.Foreign investors had always been skeptical of the $2 trillion target and recently suggested they would be interested at a valuation below $1.5 trillion. That would offer a return on their investment close to other leading oil and gas companies like Exxon Mobil Corp. and Royal Dutch Shell Plc.The new valuation implies Aramco, which has promised a dividend of at least $75 billion next year, will reward investors with a dividend yield of between 4.4% and 4.7%. Exxon Mobil pays a dividend yield of just under 5%, while Shell pays 6.4%.Saudi Arabia has been pulling out all the stops to ensure the IPO is a success to a skeptical audience. It’s cut the tax rate for Aramco three times, promised the world’s largest dividend and offered bonus shares for retail investors who keep hold of the stock.“Aramco’s price range takes into account some uncertainties that weren’t fully absorbed when the IPO was first floated,” such as governance, said Jaafar Altaie, managing director of Abu Dhabi-based consultant Manaar Group. “The lower range reflects uncertainties. It takes into account issues of supply that are very fluid, and demand that doesn’t look so good now.”Aramco has also faced the challenge of the strengthening global movement against climate change that’s targeted the world’s largest oil and gas companies. Many foreign investors are concerned the shift away from the internal combustion engine -- a technology that drove a century of steadily rising fossil fuel demand -- means consumption of oil will peak in the next two decades.Speaking in Riyadh on Sunday, Nasser acknowledged the prospect of peak demand, but argued that with the lowest production costs in the industry, Aramco would be able to win market share from less efficient producers.The Aramco IPO is a pillar of Prince Mohammed’s much-hyped Vision 2030 plan to change the social and economic fabric of the kingdom. The plan, which relies heavily on attracting foreign investors into Saudi Arabia, suffered a big setback after the assassination in 2018 of government critic Jamal Khashoggi in Saudi Arabia’s Istanbul consulate.Proceeds from the IPO will be transferred to the Public Investment Fund, which has been making a number of bold investments, plowing $45 billion into SoftBank Corp.’s Vision Fund, taking a $3.5 billion stake in Uber Technologies Inc. and planning a $500 billion futuristic city.No matter what the final valuation, the share sale will create a public company of unmatched profitability. Aramco earned net income of $111 billion in 2018 on revenue of $315 billion.(Updates with analyst comment in 12th paragraph.)\--With assistance from Nayla Razzouk, Abbas Al Lawati and Filipe Pacheco.To contact the reporters on this story: Matthew Martin in Dubai at firstname.lastname@example.org;Javier Blas in London at email@example.comTo contact the editors responsible for this story: Nayla Razzouk at firstname.lastname@example.org, ;Stefania Bianchi at email@example.com, Bruce StanleyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- It is a bad time to buy into an oil company whose major asset is reserves in the ground that can sustain current production levels of the carbon-laden fossil fuel until near the end of the century. Oil lost its place in the power generation market after the oil shocks of the 1970s, and it is now starting to see serious competition for powering cars, buses and trucks along with the first signs of viable alternatives for fueling maritime transport. Oil’s domination in air transport looks safer for now, and the industry forecasts the strongest growth in petrochemicals that go into everything from plastics and fertilizers to electronic gadgets and clothing. But the tide of history is moving firmly against fossil fuels.Saudi Aramco may boast that it holds the rights to the largest reserves of crude with the lowest carbon footprint to extract, but that rather misses the point. The climate concerns around oil are not about the carbon cost of getting it out of the ground, but of what is done with it afterward.The oil age may not be over — far from it — but oil is facing unprecedented headwinds. Here’s a sample from recent weeks and months:Venice Mayor Luigi Brugnaro said last week that climate change is menacing the historic maritime city, which suffered its second-highest tide on record. Parts of northern England are suffering their worst flooding in decades, and millions were displaced as Cyclone Bulbul hit Bangladesh and northern India.Storms and floods are not new, but they are becoming more severe, more frequent and causing more damage as sea levels rise and the climate changes — developments that are linked, at least in part, to the burning of fossil fuels.Unprecedented bushfires are ravaging parts of eastern Australia rendered tinderbox dry by a two-year drought. Wildfires forced hundreds of thousands of Californians to flee their homes earlier this month. Russia is suffering one of its worst years this century for forest fires. Once again, climate change is contributing to the creation of the hot, dry conditions that have allowed the fires to spread.Climate change is also melting Russia’s permafrost. Not a problem for Saudi Aramco, perhaps, but certainly one for Russia’s oil industry, which relies on infrastructure built in the 1970s on ground that is no longer able to support the weight it was 40 years ago.Mounting climate concerns are inexorably turning public opinion against hydrocarbons, including oil.What’s more, pollution caused by leaking pipelines, accidents involving oil tankers, or drilling rigs are all increasing the pressure on the oil and gas industry. Particulate emissions from burning fossil fuels are behind elevated mortality rates, leading to stricter controls on ship fuels, measures to push cars and vans out of city centers and increasing pressure on airlines to find alternatives.Aramco has a solution to the predicament the industry is in — petrochemicals. The company wants to turn 40% of its crude into chemicals, according to Abdulaziz Al-Judaimi, Saudi Aramco’s senior vice president for downstream. But petrochemicals are under pressure, too.Globally more than 200 businesses, from Coca-Cola Co. to food and consumer goods giant Unilever NV have made commitments to reduce plastic waste, according to the Ellen MacArthur Foundation. Unilever aims to halve its use of virgin plastic by 2025. Coca-Cola’s goal is for its bottles to contain an average of 50% recycled content by 2030. Initiatives like those will make a serious dent in the projected demand for new plastics.Globally more than 200 businesses, from Unilever NV to Coca-Cola Co. have made commitments to reduce plastic waste, according to the Ellen MacArthur Foundation. Unilever NV aims to halve its use of virgin plastic by 2025. Coca-Cola Co. intends that its bottles will contain an average of 50% recycled content by 2030. Initiatives like those will make a serious dent in the projected demand for new plastics.And then there’s an issue that is specific to Saudi Aramco — the security of its facilities. The company did a spectacular job of restoring output levels after a devastating attack on its oil facilities in September, using spare capacity elsewhere to boost flows. But the very fact of the attacks has raised concerns among potential investors about Saudi Arabia’s ability to protect its oil infrastructure.The time to bring private investors into Saudi Aramco was when everybody wanted a piece of the action. Twenty years ago investors would have fallen over each other beating a path to Saudi Aramco’s door. It’s a much tougher sell now.To contact the author of this story: Julian Lee at firstname.lastname@example.orgTo contact the editor responsible for this story: Melissa Pozsgay at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Hong Kong is doing everything it can to ensure Alibaba Group Holding Ltd.'s listing is a roaring success. That's turning the $12 billion mega-sale into a hot item — if you can get your hands on the shares.Alibaba will initially offer only 2.5% of the offering to individual investors, a quarter of the allocation specified in Hong Kong’s listing rules and half the 5% level typically allowed for sales valued at more than HK$10 billion ($1.3 billion). The retail portion may be increased to as much as 10% depending on the level of demand, though that’s still well below the 50% that the listing rules require for the most heavily subscribed offers.The effect of squeezing down the retail offering may be to increase the perceived rarity value of Alibaba shares, magnifying the buzz around what may be Hong Kong’s biggest share sale since 2010. For example, an allocation that is barely covered at 10% would be four times subscribed at 2.5% with the same level of demand.Hong Kong Exchanges & Clearing Ltd. has done its utmost to accommodate Alibaba, introducing rules that allow dual-class shares after resisting change for a decade — and losing the company’s $25 billion initial public offering to New York in 2014. The word “waiver” appears 80 times in Alibaba’s prospectus.With Hong Kong’s economy and markets rocked by protests, there’s much riding on a successful sale. After the listing, HKEX will be home to Asia’s two largest technology companies in Alibaba and Tencent Holdings Ltd. That could help the exchange attract more tech plays such as Southeast Asian ride-hailing giants Grab Holdings Inc. and Gojek.There are reasons to expect Alibaba’s Hong Kong stock to do well. Many mainland Chinese investors will get their first chance to buy shares of the country’s most valuable corporation, once Alibaba is included in the “stock connect” trading pipes that link Hong Kong with the Shanghai and Shenzhen exchanges. Capital controls prevent Chinese investors from easily accessing overseas stock markets, meaning that only those with money parked outside the mainland can trade Alibaba’s U.S. stock. And Chinese technology companies often attract higher valuations on local exchanges than overseas.Alibaba is at the forefront of China’s digital and consumer economies, with its Taobao and Tmall sites continuing to thrive as weakening growth prompts more people to seek bargains online. The company reported record sales for its Singles’ Day shopping festival on Nov. 11 and posted a 40% surge in September-quarter revenue. Its New York-traded stock had risen 33% this year as of Thursday’s close, and 54 of 55 analysts tracked by Bloomberg rate the stock a buy (the other is a hold).Institutions are sure to support the sale, encouraged by expectations of a wall of Chinese money joining them. Demand will come from Asian funds that have overlooked Alibaba previously because they want to trade in their own time zone. Hedge funds also sense opportunity. An expected price gap between Alibaba’s New York and Hong Kong shares is fueling a colossal arbitrage trade, Fox Hu and Carol Zhong of Bloomberg News reported Nov. 14. Alibaba will raise as much as $13.4 billion if an over-allotment option is exercised. The institutional offering will be priced on Nov. 20.In a possible fillip for retail demand, the offering will be Hong Kong’s first fully paperless listing, according to Reuters. Whether by accident or design, that means individuals won’t have to line up at banks or brokerages to obtain application forms — a potential deterrent given the unrest. Even the numbers associated with the listing are auspicious. Alibaba has capped the per-share price for individual investors at HK$188 apiece — double eight is particularly lucky in Chinese. And the company will trade under the stock code 9988, which sounds like “forever prosperous.” It looks like no one is leaving anything to chance. To contact the author of this story: Nisha Gopalan at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
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China's JD.com Inc beat analysts' estimates for quarterly revenue on Friday, boosted by stronger sales in its core e-commerce business, sending its shares up nearly 7% before the bell. The company attributed the strong results to growth in lower-tier cities, a key area of expansion for China's e-commerce giants as they tap out their existing base of users in China's wealthier regions. The company's total net revenue rose 28.7% to 134.8 billion yuan ($19.27 billion) in the third quarter ended Sept. 30.
A Siberian ride-hailing firm that allows customers to haggle over their fares is investing to beef up its presence in Moscow, a market dominated by New York-listed internet giant Yandex and Uber, its founder said. InDriver, which is available in 28 countries chiefly in Central Asia and Latin America, plans to spend up to $10 million over the next two years to expand its presence in the sprawling Russian capital, its head and founder Arsen Tomsky told Reuters. Unlike its competitors that offer fixed rates, inDriver allows customers themselves to propose a fare for their journey.
Alibaba's order books for its $13.4 billion Hong Kong share sale have already been covered "multiple times," sources with direct knowledge of the matter said on Friday, as the ecommerce group kicked off its campaign for the secondary listing in the city gripped by protests. The Chinese e-commerce giant plans to list its shares in Hong Kong from November 26, where it is hoping to raise up to $13.4 billion, and it is marketing the deal to investors around the world. The sources said potential investors had been told that the "quality of demand is high" and that there "continues to be very strong feedback" about the deal.
Alibaba's $13.4 billion institutional bookbuild for its Hong Kong listing is already covered "multiple times," according to a message sent to investors and verified by sources with direct knowledge of the matter. The Chinese e-commerce giant plans to list its shares in Hong Kong from November 26 and is currently marketing the deal to investors around the world. Pricing of the stock for institutional shareholders will be set on November 20, a prospectus lodged with the Hong Kong Stock Exchange shows.
(Bloomberg Opinion) -- If you’ve dropped the kids off at school in London or the New York suburbs recently, the idea that Jaguar Land Rover Automotive Plc is struggling must seem far-fetched. The British carmaker’s Range Rover SUVs have become a common feature of the upper-middle class lifestyle. How else would one get to brunch and the gym?Yet a decade after India’s Tata Group acquired and dramatically reinvigorated these famous old brands, JLR is back on the ropes. The unit lost an eye-peeling 3.3 billion pounds ($4.2 billion) in the fiscal year to March and burned through 1.3 billion pounds of cash. No wonder Tata is casting around for help.JLR’s cost-base has become bloated, its sales in China have collapsed and its big bet on Jaguar saloon (sedan) models has failed to pay off. Selling SUVs to Brits and Americans has prevented its fall from being even more dramatic. However, new gasoline and diesel cars are going to be banned in the U.K. and elsewhere by 2040 and the climate crisis could trigger a backlash against gas-guzzlers well before then. Either way, refashioning the company for a zero-emissions future will be very expensive.Tata insists JLR is not for sale but that doesn’t mean it wants to continue this journey alone. The unit had about 2.2 billion pounds of net debt at the end of September.The Indian parent has approached fellow automakers including China’s Zhejiang Geely Holding Group Co. and Germany’s BMW AG, about forging partnerships to help JLR save money, Bloomberg reported this week. These would supplement existing collaborations with BMW on electric drive systems and with Waymo on autonomous vehicles.This hunt for allies makes sense because JLR’s business model is looking shaky. More than 80% of the vehicles that it sold in Europe last year run on diesel, a technology that’s been undermined by Volkswagen AG’s emissions cheating and the threat of bans in many cities.SUVs make up an even higher percentage of sales. The boom in these vehicles has contributed to a rise in average carbon emissions from carmakers over the past year or two. No wonder they’re in the cross-hairs of climate campaigners. Last month JLR listed “increasing environmental activism” among its biggest challenges.The Extinction Rebellion crowd has a point here. A top-specification Range Rover can weigh more than 5,700 lbs (2,585kg), which is why the company’s vehicles tend to spew out more CO2 than peers.Because it sells less than 300,000 cars annually in Europe, JLR has special dispensation from Brussels to pollute more.(1) However, these lenient fleet emission targets expire in 2028, so the company needs to change its ways sharpish.It says it’s on track to cut emissions by 45% in 2020 compared to 2007 levels, as required by regulators. From next year there will be a hybrid or electric variant of all of its models; and Jaguar’s all-electric I-Pace compact SUV deservedly won car of the year. Creating zero emissions versions of the group’s biggest SUVS will be more difficult, though, because of their hefty weight and poor aerodynamics.Footing the bill will be a stretch too. The company has to manage a 4 billion pound yearly investment budget while selling far fewer cars than its bigger rivals: JLR sold less than 600,000 vehicles last year, about 5% of Volkswagen’s haul. Lackluster sales have left it with unused production capacity.Its attention to detail in manufacturing has also been found wanting. The Jaguar and Land Rover brands came bottom in J.D. Power’s U.S. new vehicle quality rankings, and high warranty costs are an unwelcome feature of its earnings. All of this means JLR’s profit margins are thinner than you might expect given the $210,000 price tag of a high-spec Range Rover.Even as far out as 2023, JLR anticipates an operating return on sales of 6% at most. This is similar to Daimler AG’s 2022 target for Mercedes-Benz, but is way below the margins of French mass-market carmaker Peugeot SA.Thanks to progress on cost-cutting and signs that plunging China sales have bottomed out, investors have become more confident in Tata’s ability to turn JLR around. It returned to profit in the second quarter, prompting a rally in Tata Motors’ shares and JLR’s beaten up bonds. President Donald Trump’s threat of a 25% U.S. tariff on imported vehicles appears to have receded somewhat, as has the likelihood of a no-deal Brexit that would have been ruinous for carmakers.Might this moment of calm tempt a buyer of the company out of the shadows? Tata’s reluctance to sell isn’t the only barrier. Peugeot was rumored to be keen but its chief executive officer Carlos Tavares has found another merger partner in Fiat Chrysler Automobiles NV. Bernstein analyst Max Warburton says BMW would fit but the Bavarians lost a lot of money when they owned Rover in the 1990s.There are also politics to consider. The backlash against SUVs, many built by BMW, is acute in Germany. Doubling down on gas-guzzling urban tractors might harm BMW’s emissions footprint.(2) It might also be viewed poorly by the Berlin government, which boosted electric vehicle subsidies recently.While SUVs can carry lots of baggage, increasingly it’s the wrong kind.(1) JLR's new cars must have average emissions of about 130 g/km of CO2 by 2021, compared to an industry average of 95g.(2) Depending on what happened to JLR's emissions derogationTo contact the author of this story: Chris Bryant at firstname.lastname@example.orgTo contact the editor responsible for this story: James Boxell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Chinese e-commerce giant Alibaba is set to price its first share sale in Hong Kong next week, raising up to $13.4 billion (£10.5 billion) in what will be the largest deal in the city since 2010 and the world's biggest ever cross-border secondary listing. WHY IS ALIBABA LISTING IN HONG KONG? Alibaba, which is due to start trading on Nov. 26 in Hong Kong, could also benefit from Chinese demand.
Alibaba Group's $13.4 billion (£10.5 billion) Hong Kong listing is shrinking cash levels in the protest-wracked financial hub, with short-term borrowing costs shooting back towards a decade-high marked in July. Large IPOs and share sales typically hoover up cash in Hong Kong's relatively small banking system, albeit temporarily. "Timing wise, it's not good for the liquidity to get sucked out of the system as there's a bit of capital outflow happening due to the protests," said a Hong Kong-based senior banker at a European bank, who asked not to be identified.
(Bloomberg) -- Alibaba Group Holding Ltd. priced the retail portion of its Hong Kong share sale Friday, issuing an appeal to individual investors in a city in the throes of recession after months of violent pro-democracy protests.The largest Chinese e-commerce company capped the 12.5 million shares available to individual investors at HK$188 apiece -- an auspicious number in Chinese culture -- making it the most expensive first-time share sale in Hong Kong. Alibaba said it may price the remainder of its 500 million-share offering above that ceiling, signaling that it aims to raise at least $12 billion in what would be one of the world’s largest sales of stock this year. The company will price the rest of its international offering by Nov. 20.Asia’s largest corporation is proceeding with what could be Hong Kong’s biggest share sale since 2010. Slated for late November, it’ll be the Chinese e-commerce juggernaut’s official Asian coming-out party -- half a decade after snubbing the financial hub for a record Wall Street debut. Alibaba’s return hands a much-needed victory to a city wracked by protests since the summer, and will please Chinese officials who’ve watched many of the country’s largest private corporations flock overseas for capital. If the deal goes through, Alibaba will challenge Tencent Holdings Ltd. for the title of the largest Hong Kong-listed corporation.“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said. “During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” Daniel Zhang, chief executive officer of Alibaba, said in a letter to investors.Read more: Alibaba Is Taking Orders for $11 Billion Hong Kong ListingListing closer to home has been a long-time dream of billionaire Alibaba co-founder Jack Ma’s. A successful Hong Kong share sale could help finance a costly war of subsidies with Meituan Dianping in food delivery and travel, and divert investor cash from rivals like Meituan and WeChat operator Tencent. It will also be a feather in the cap for Zhang, who took over as chairman from Ma in September. The former accountant is now spearheading the company’s expansion beyond Asia but also into adjacent markets from cloud computing to entertainment, logistics and physical retail.What Bloomberg Intelligence SaysAlibaba’s secondary listing in Hong Kong could lead to a shake up of the Hang Seng Index, the city’s main stock benchmark. The 50-member index is heavy on financial stocks, when comparing weights to other leading equity indexes in the world. Meanwhile, IT, industrials and consumer discretionary stocks are severely underrepresented.\- Steven Lam, analystClick here for the researchA marquee name like Alibaba’s could draw investors and boost trading liquidity for Hong Kong Exchanges & Clearing Ltd., which just incurred its biggest profit slump in more than three years. For Hong Kong, it’s bit of welcome news following half a year of often violent protests that have at times paralyzed the city and its service industry. Efforts to court Alibaba emanated from the very top, with Chief Executive Carrie Lam herself exhorting Ma to consider a listing in the city.Alibaba has considered a Hong Kong listing for a long time, Michael Yao, head of corporate finance at Alibaba, said on a call with investors this week. The deal size hasn’t changed as a result of the protests, he added.(Updates with details of price per share comparison in second paragraph)\--With assistance from Zhen Hao Toh.To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at firstname.lastname@example.org;Alistair Barr in San Francisco at email@example.comTo contact the editors responsible for this story: Peter Elstrom at firstname.lastname@example.org, Edwin Chan, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Alibaba's order books for its $13.4 billion (£10.5 billion) Hong Kong share sale have already been covered "multiple times," sources with direct knowledge of the matter said on Friday, as the ecommerce group kicked off its campaign for the secondary listing in the city gripped by protests. The Chinese e-commerce giant plans to list its shares in Hong Kong from November 26, where it is hoping to raise up to $13.4 billion, and it is marketing the deal to investors around the world. Pricing of the shares for institutional shareholders will be set on November 20, a prospectus lodged with the Hong Kong Stock Exchange shows.