Saudi Aramco touches $2 trillion mark amid strong investor demand on day two

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Saudi Aramco’s shares ended their second day about 15 percent higher than the company’s IPO price, and fetched the oil giant a valuation of $1.96 trillion, in a clear sign that investor demand remained strong after a recordbreaking listing on Wednesday.

Shares of the company closed up 4.6 percent at 36.80 riyals ($9.81) after hitting a session high of 38.70 riyals, which valued the company at over $2 trillion, earlier on Thursday. More than 414 million shares valued at 15 billion riyals ($4 billion) exchanged hands on the second day.

“We would not be surprised if the stock crosses the 40 [riyal] mark next week pushed by flows,” Vrajesh Bhandari, senior portfolio manager at Al Mal Capital said.

At that level, the company’s valuation would be $2.13 trillion, exceeding the $2 trillion target set by Saudi Arabian authorities when the IPO was first announced in 2016.

Aramco’s IPO raised $25.6 billion, the largest in history, beating out Alibaba’s $25 billion IPO in 2014. It is now the most valuable company in the world ahead of Apple Inc, and is worth more than all five energy majors combined.

Investors have long been attracted to Aramco for its profitability and for having the lowest average cost of crude oil production in the world, at around $3 a barrel. It also sits on one of the biggest oil reserves in the world, about 10 times larger than those of its next biggest competitor ExxonMobil.

“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.

National oil companies in countries like Mexico, Brazil and Venezuela are saddled with debt and have suffered decades of corruption.

“Saudi Aramco has a reputation for … outstanding technology, outstanding management, and that’s a big plus for the company,” Ritter added.

Aramco, which has set a base dividend of $75 billion in 2020, reported a profit of $68 billion for the first nine months of 2019. Exxon Mobil, the second largest energy firm with a $300 billion valuation, earned $8.7 billion in the same period.

Vision 2030

The listing is a cornerstone of Saudi Arabia’s Vision 2030 plan, which aims to wean the Kingdom off its reliance on oil and diversify the economy.

The program, which calls for economic and social reforms along with massive investments in infrastructure and technology, was first announced by Saudi Crown Prince Mohammed Bin Salman in 2016. The Aramco IPO is set to support this plan.

“If Aramco is not put for IPO, it means it will take us 40-50 years to develop the mining sector. It will take us 40 years until we develop the local product and it will take us long years to develop logistical services, just like we wasted 40 years in the past while trying to develop these sectors,” Crown Prince Mohammed bin Salman said in an interview broadcast on Al Arabiya back in 2017.

The Kingdom has already made great strides towards its goals.

Saudi Arabia jumped 30 spots in the World Bank’s Ease of Doing Business 2020 index in October – the biggest improvement and highest jump worldwide.

The World Bank said that reforms under the plan had let to improved access to credit, strengthened minority investor protections, and facilitated the resolution of insolvency in the Kingdom.

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