Saudi Aramco starts trading, instantly becomes world's most-valued at $1.8T

Marco Green
December 11, 2019

In the report, words including "strong-arm", "coerce" and "bully" were used to describe the way Saudi Arabia's government was trying to secure the anchor investors for what many see as the deal of the century in oil and the largest IPO ever.

Saudi Arabian Oil Co (Aramco) raised a record $25.6 billion in its IPO last week, giving it a market value of around $1.7 trillion. 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.

Last year, the prince announced plans to list 5 percent of Aramco at a valuation of approximately 2 trillion USA dollars.

The investment index providers MSCI, S&P Dow Jones and FTSE Russell, which is owned by the London Stock Exchange, have all said they will fast-track the inclusion of Aramco shares into their indices, which would mean that investors around the world, including pension funds, would automatically be forced to buy shares.

At a pre-trading auction earlier in the morning, bids for Aramco had already reached the 10 per cent limit on stock price fluctuation allowed by Tadawul.

Saudi Arabia, though, only sold 1.5% of the company's capital, meaning that barely any of its shares will trade.

The IPO process put the energy giant's value at $1.7 trillion, far ahead of other firms in the trillion-dollar club, including Apple and Microsoft.

Saudi Arabia's Crown Prince Mohammed bin Salman attends a meeting with US Secretary of State Mike Pompeo in Jeddah, Saudi Arabia, on September 18, 2019.

But the scaled-down offering is still a far cry from the blockbuster originally planned by Prince Mohammed.

The much-delayed stock sale, first announced in 2016, was initially expected to raise as much as US$100 billion from the listing of up to five per cent of the company.

The government is now piling pressure on wealthy families and institutions to buy Aramco shares after trading begins in a last-ditch effort to reach the $2 trillion mark, the Financial Times reported on Tuesday.

To encourage Saudi citizens to buy and keep hold of Aramco stock, the company says it will pay a dividend of at least $75 billion in 2020.

Most actively managed funds said they would likely steer clear of the IPO, citing concerns about governance, the environment, and regional geopolitics, according to information provided to Reuters by 26 major asset managers outside the Gulf region. And the remaining percent is for institutional investors.

Non-Saudi investors contributed just 23% of the institutional investment generated in the IPO, according to lead adviser Samba Capital. After worldwide investors balked at Aramco's valuation expectations, the kingdom instead focused on raising money domestically.

Its debut comes as oil prices are being supported by a Saudi-orchestrated move by the Organization of the Petroleum Exporting Countries (OPEC) and oil-producing allies to commit to some of the industry's deepest output cuts in a decade to try to avert oversupply.

Other reports by Click Lancashire

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