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Will 2019 produce the biggest IPO ever?

Happy Sunday. A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.

This week is expected to yield a long-awaited reveal in the IPO universe. After moving toward a public offering for nearly three years, Saudi Aramco — Saudi Arabia’s state oil monopoly — will price shares for an initial public offering due later this month.

The big question: Will Saudi Aramco be able to recruit enough willing investors to land a valuation at the higher end of its range? If not, it would be another setback for a market debut that has already run into trouble.

Remember, Crown Prince Mohammed bin Salman reportedly pushed for a valuation near $2 trillion. But low oil prices, the climate crisis and geopolitical risk raised skepticism among international investors.

Aramco said last month that it was aiming to sell about 1.5% of its 200 billion shares in a partial privatization for between 30 riyals ($8) and 32 riyals ($8.53) each. That means Aramco, the most profitable company in the world, could be worth between 6 trillion riyals ($1.6 trillion) and 6.4 trillion riyals ($1.7 trillion).

If the company ends up on the higher end of that range, it will break records. The share sale on the domestic Tadawul exchange would raise just over $25 billion, making it slightly bigger than Alibaba’s 2014 debut on the New York Stock Exchange, the biggest IPO to date.

The latest: Up to 0.5% of the company will be sold to individuals, with the remainder offered to institutional investors. Lead manager Samba Capital said last week that the deal is on track to be oversubscribed, with orders totaling $44.3 billion, per Reuters. Institutional investors can submit offers until Wednesday.

But the deal looks different from what had been touted in the past. Bankers reportedly had to cancel roadshows in New York and London, forcing Aramco to lean more on the sovereign wealth funds of regional allies such as the United Arab Emirates and Kuwait.

Risky corporate debt remains a big weakness

Historically low interest rates have encouraged businesses to take on huge piles of debt, which they’ve used to fund hiring, mergers and generous handouts to shareholders. But the number of defaults is ticking up, causing some market watchers to worry.

S&P Global said in a research note published in mid-November that the global corporate default tally has hit 101 so far this year. That’s pacing ahead of 2018, when there were 74 defaults at the same point.

Know this stat: Corporate debt has reached a record high as a share of US GDP.

The Federal Reserve called out the problem in its recent Financial Stability Report released last month. “Business debt levels are high compared with either business assets or GDP, with the riskiest firms accounting for most of the increase in debt in recent years,” the central bank noted.

Why the Fed think it’s a concern: If the economy goes south, the Fed worries that investors will start to dump riskier bonds, which could cause market liquidity to dry up and weigh further on prices.

“My concern is if you have a downturn where we grow more slowly, it means this amount of debt could be an amplifier,” Dallas Federal Reserve President Robert Kaplan said in an interview with CNBC last week. In such an environment, larger amounts of cash would be used to service debt, he pointed out, which won’t do much to restore growth.

Credit markets are on track to close out the year with double-digit percentage returns, Morgan Stanley noted in its recent credit strategy outlook. But watch this space: “There is little doubt in our minds that US corporate balance sheets are a weak link in this cycle,” the investment bank said.

Up Next

Monday: China manufacturing PMI; US ISM Manufacturing Index

Tuesday: Salesforce earnings; Brazil GDP

Wednesday: US ISM Non-Manufacturing Index; ADP private employment report; Campbell Soup and Slack earnings; Australia GDP

Thursday: US trade balance; Dollar General, Kroger, Tiffany & Co., American Outdoor Brands, CrowdStrike and Ulta Beauty earnings; India interest rate decision; OPEC meeting; Aramco IPO prices

Friday: US jobs report; University of Michigan consumer sentiment survey

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