Saudi Aramco pushes over $2 trillion valuation

Matthew Amlôt, Al Arabiya English

Saudi Aramco’s stock price shot up to 38.7 riyals ($10.32), pushing the company’s valuation to $2.06 trillion on Thursday, hitting the target envisioned by Saudi Arabian authorities, as the oil giant begins its second day of trading on the Saudi Stock Exchange (Tadawul).

The company’s valuation dipped below the $2 trillion mark after opening before recovering in late morning trade.

The company began trading on the Tadawul Wednesday following its record-breaking initial public offering (IPO) which raised $25.6 billion. Aramco’s share price came to market fixed at 32 riyals ($8.53), but shot up immediately after listing to 35.2 riyals ($9.39), the maximum gain permitted by a 10 percent fluctuation limit on the stock. It stayed at 35.2 riyals throughout the day.

The company’s new valuation hits the $2 trillion target set by authorities, following Aramco’s IPO in which the company was priced at $1.7 trillion. The new valuation is in line with Saudi Arabian Crown Prince Mohammed bin Salman’s original 2016 announcement of a partial sale of Aramco when he stated that the company’s true value is $2 trillion

“It’s a great company…well managed and in that regard it’s somewhat different from other government-owned oil companies in the world where many of them have a reputation for inefficiency,” said Jay Ritter, an IPO expert and professor at the University of Florida.

Aramco’s blockbuster IPO comes after a series of lackluster IPOs globally, including WeWork’s scrapped IPO, and lukewarm investor response to Uber’s IPO, which has contributed to negative sentiment globally towards IPOs.

This sentiment is, “largely focused on high growth tech stocks, particularly money losing high tech startups,” said Ritter.

“Nobody is going to confuse Uber technologies with Saudi Aramco,” he added in reference to the oil giant’s IPO performance.

The proceeds from the IPO could rise to $29.4 billion should the oil giant exercise an option to sell 15 percent more stock, a senior banker said on Monday.

Wassim al-Khatib, Head of Investment Banking at National Commercial Bank, said the so-called greenshoe option – a provision that grants the underwriter the right to sell more shares – could be implemented.
 

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.