Market reaction to Saudi Aramco listing ‘far better than expected’: Analysts

Matthew Amlôt, Al Arabiya English

Saudi Aramco’s initial public offering has gone far better than expected, analysts told Al Arabiya English on Wednesday.

Saudi Aramco’s share price shot up to 35.2 riyals ($9.39), the maximum permitted by the 10 percent fluctuation limit, almost immediately when it began trading on the Saudi Stock Exchange (Tadawul) on Wednesday, valuing the company at $1.88 trillion, dwarfing any other company in the world.

“The market reaction on day one has been far better than expected,” said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital said.

Following its listing, Aramco’s stock price stayed at 35.2 riyals throughout the day, suggesting investor appetite. “We expect another good day and the stock should be able to hit the $2 trillion market capitalization mark,” explained Bhandari.

“Optimism is there … the interest for the Tadawul listing is higher than expected,” added geopolitical analyst, and director of Dutch consultancy Verocy, Cyril Widdershoven.

Aramco’s initial public offering (IPO) saw the company valued at $1.7 trillion, below the $2 trillion valuation that authorities have targeted.

The market’s response was “very positive and excited,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

Al-Sudairi also noted that the price would be supported by Aramco’s inclusion in the MSCI and FTSE Russell emerging market indexes. “Our expectation … is about $4 billion [in inflows], $2.5 billion from MSCI and $1.5 billion from FTSE.”

His sentiments were echoed by Bhandari, who said that the stock would find further support from passive investor flows following its inclusion in the MSCI and FTSE indexes.

Last month, MSCI, which is followed by global funds that manage trillions of dollars in assets, recently said that if Aramco starts trading on or before December 12, it would add the company to the MSCI Equity Indexes from December 17. Otherwise, the company would have to wait to be considered for inclusion after January 5, 2020.

In regards to how Aramco sits in comparison to other oil majors, al-Sudairi said, “The financials of Aramco are much healthier, it’s incomparable with others.”

In addition, the fact that Aramco’s business, oil, is priced in dollars lends support to the company moving forward, he said. “The main concern of emerging economies is the currency. The riyal is pegged to the dollar, but [Aramco’s] business itself is a dollar business.”

“The Tadawul success is a major breakthrough as there was skepticism on the global financial markets … [they] were not looking at the clear geopolitical plays in place and the GCC support which should have been counted in,” concluded Widdershoven.
 

FAQ's

Saudi Aramco is the Kingdom’s state-owned energy company and the world’s biggest oil producer. In November, the company reported a profit of $68 billion for the first nine months of 2019 – making it the most profitable company in the world.
An initial public offering (IPO) is the process by which a company sells a portion of its ownership (shares) to public investors to raise funds (also known as capital). The company sells its shares by listing them on a public stock exchange, where investors can purchase them.
"I am honored to announce that Saudi Aramco will become a listed company on the Saudi Stock Exchange,” Chairman Yassir al-Rumayyan said in early November. The exact percentage of the company and the possibility of another listing on a foreign exchange are both still unknown details, however.
Senior Saudi Arabian authorities have targeted a $2 trillion valuation. At this valuation, a 5 percent listing would raise $100 billion in funds – dwarfing any other IPO in history. However, some analysts and investment banks have predicted a range closer to between $1.2 and $1.5 trillion.
The IPO prospectus is expected to be released on November 10, with pricing expected November 17. Meanwhile, the float is expected to take place on December 4, followed by trading on December 11.
The IPO is part of Saudi Arabia’s overall strategy to transition into a post-hydrocarbon age. The income generated would be funneled into the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund (SWF). Saudi Arabia’s Vision 2030 plans to transform the PIF into a giant investment vehicle to help the country diversify its economy and reduce its reliance on oil revenues.
Saudi Vision 2030 is the Kingdom’s ambitious plan to diversify its economy by reducing dependence on oil and developing non-oil sectors ranging from healthcare to mining. The IPO is seen as a cornerstone of Vision 2030, boosting the PIF as the long-term investment vehicle for the Kingdom.

Saudi Arabia’s Crown Prince Mohammed bin Salman

- The Crown Prince is the architect of Vision 2030 and originally announced plans to list shares of Saudi Aramco in 2016.

Prince Abdulaziz bin Salman, Saudi Arabia’s Energy Minister

- Prince Abdulaziz assumed the role of energy minister in September of this year, replacing Khalid al-Falih.

Yasir al-Rumayyan, Chairman, Aramco

- Al-Rumayyan became chairman of Aramco’s board in September. He is best known as governor of the PIF, a role he continues to hold.

Amin Nasser, President and CEO, Aramco

- Nasser has been with Aramco for more than three decades and has held numerous leadership positions.