Saudi Aramco set a valuation target for its initial public offering well below Crown Prince Mohammed bin Salman's goal of $2 trillion and pared back the size of the sale after the government decided to make the deal an almost exclusively Saudi affair.
The initial public offering will now rely on local investors after most international money managers balked at even the reduced price target.
The deal won't be marketed in the U.S., Canada or Japan and on Monday bankers told investors roadshow events in London and other European cities, planned for this week, were canceled.
Aramco will sell just 1.5% of its shares on the local stock exchange, about half the amount that had been considered, and seek a valuation of between $1.6 trillion and $1.71 trillion.
As well as slimming down the deal, the Saudi authorities relaxed lending limits to ensure sufficient local demand to get the share sale done.
While the new valuation means Aramco will overtake Apple as the world's biggest public company, 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. At the lower end of the price range, the offer would fall short of a record, coming in just below the $25 billion raised by Alibaba Group Holding Ltd. in 2014.
Aramco Chief Executive Amin Nasser kicked off the IPO's final phase at a presentation for hundreds of local fund managers in Riyadh on Sunday.
Aramco will need to lean heavily on local investors, large and small, to get the job done.
The Saudi Arabian Monetary Authority will allow smaller retail investors to borrow twice their cash investment, double the normal leverage limits the regulator allows for IPOs, according to people familiar with matter.
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 and Royal Dutch Shell.
The new valuation implies Aramco, which has promised a dividend of at least $75 billion next year, will reward investors with a yield of between 4.4% and 4.7%. That compares with just under 5% for Exxon Mobil and 6.4% for Shell.
"Institutional investors are unlikely to find this valuation range attractive," analysts at Sanford C. Bernstein said in a research note Sunday, adding that the price range implies a premium to Western oil majors on most metrics, including price-to-earnings and free cash flow yield.
Saudi Arabia 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.
No matter what the final valuation, the share sale will create a public company of unmatched profitability. Aramco earned a net income of $111 billion in 2018 on revenue of $315 billion.