Saudi Aramco hits Crown Prince’s $2 trillion goal despite valuation doubts

Saudi Aramco

Bloomberg – Saudi Aramco shares surged after the oil producer’s initial public offering, valuing the company at a record $2 trillion in the culmination of a four-year effort by the kingdom to list its crown jewel.

The stock jumped the daily 10% limit to 35.20 riyals when trading began at 10:30 a.m. in Riyadh as Aramco board members, Saudi officials and invited guests cheered at a ceremony at the Fairmont Hotel in the kingdom’s capital. The shares stayed there through the market close, putting Crown Prince Mohammed bin Salman’s goal of a $2 trillion valuation within reach.

Aramco raised $25.6 billion in the biggest-ever IPO, selling shares at 32 riyals each and overtaking Microsoft Corp. and Apple Inc. as the most valuable listed company.

The start of trading in Riyadh marks the end of a saga that’s been intertwined with the crown prince’s rise to global prominence and his Vision 2030 plan to reform the Saudi economy. First announced in an interview with the Economist in January 2016, the IPO came after a tumultuous period that included the murder of government critic Jamal Khashoggi and the imprisonment of prominent Saudis in Riyadh’s Ritz Carlton. The sale ultimately fell short of the $100 billion international offering with a valuation of $2 trillion that the prince once proposed.

Saudi officials pulled out all the stops to ensure that the stock traded higher after an offering that international investors largely rejected, citing the valuation and concerns including governance issues and possible security threats. The stock price also should be underpinned by demand from index-tracking funds, since Aramco will be added to emerging-market benchmarks.

Aramco, the world’s largest oil producer, is so big that it easily dwarfs the rest of the companies in the Saudi market, which have a combined value of about $500 billion. Adding in Aramco at its current market value, the kingdom’s bourse becomes the world’s seventh-biggest stock market, overtaking Canada, Germany and India. Saudi Arabia, though, only sold 1.5% of the company’s capital, meaning that barely any of its shares will trade.

Aramco Chart

Final orders surpassed $119 billion, with authorities allowing lenders to boost loans beyond usual to support the sale.

Not everyone is convinced the share price surge will last. Many international investors are avoiding the stock because of environmental, social and governance concerns, while others say the company is overvalued given its dividend yield versus peers.

“Fundamentally, especially when taking ESG considerations into account, the valuation is stretched,” said Siddharth Sanghvi, head of emerging markets equity research at Amundi.

Aramco has promised a bumper dividend payment of a minimum $75 billion a year until at least 2024. That implies a yield of about 3.9%, much less generous than peers BP Plc and Royal Dutch Shell Plc, yet also high enough to threaten to stretch the company’s finances if crude prices fall.

Aramco’s IPO relied on some of the kingdom’s richest families, who had members detained in the Ritz hotel during a so-called crackdown on corruption in 2017, and also on cash from neighboring allies such as the sovereign wealth funds of Kuwait and Abu Dhabi. Gulf Cooperation Council investors are confident the stock price has plenty of room to increase, boosted by incentives that go from bonus shares to the fast inclusion in emerging-market benchmarks.

Wealthy Saudis were pressed to buy shares after the start of trading to make the IPO a success, the Financial Times reported Tuesday.

A surge in early trading validates “our thesis that Aramco’s pricing fell short of $2 trillion to leave upside on the table for Saudi and GCC investors, allowing them to benefit from the listing of Saudi’s crown jewel,” said Zachary Cefaratti, chief executive officer at Dalma Capital Management Ltd., which bought shares in the IPO through three funds.


Goldman Sachs Group Inc., acting as share stabilizing manager, has the right to exercise an option to sell another 450 million shares. It could be executed in whole or in part up to 30 calendar days after trading begins. The previous largest IPO, Alibaba Group Holding Ltd., rose 38% in its trading debut in 2014.

The Aramco IPO proceeds will be transferred to the Public Investment Fund, which has made a number of bold investments, including into SoftBank Group Corp.’s Vision Fund and a $3.5 billion stake in Uber Technologies Inc. Saudi authorities flagged this week that “a lot” of the money will be spent in the domestic economy.

The proceeds of the Aramco deal alone are equal to more than a decade of IPOs on Tadawul, the Saudi stock exchange. The company will have a weight of 8% to 9% in the Tadawul All Share Index, said Khalid Al Hussan, chief executive officer of the bourse.

Even though Aramco’s free float is among the lowest globally, the deal opens up one of the world’s most secretive companies, one that bankrolled Saudi Arabia and its rulers for decades, but until this year had never published financial statements or borrowed in international debt markets.

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