Saudi Aramco shares surge 10 percent on stock market debut

Shares in Saudi Aramco surged 10 percent as the world’s largest oil producer began trading in its home country on Wednesday, following its record initial public offering (IPO).

The state-controlled oil giant’s shares opened at 35.2 riyals ($9.39) on Wednesday, 10 percent above their IPO price of 32 riyals to give it a market value of $1.88 trillion.

The listing comfortably makes Aramco the largest listed company worldwide, overtaking Microsoft Corp and Apple Inc, as well as catapulting Riyadh’s stock exchange into the world’s top 10 by the value of listed companies.

“It’s likely that we will see Aramco bid up to $2 trillion or higher in the first days of trading, and potentially to trade limit up on the first day,” Zachary Cefaratti, chief executive officer at Dalma Capital Management Ltd, told Bloomberg. His company bought shares in the IPO through three funds.

The company will, however, have one of the smallest “free floats” of publicly tradeable shares, at just 1.5 percent.

Aramco’s shares began trading half an hour after the market opened as the Saudi bourse allowed extra time for the “opening auction” period when investors place their bids, in anticipation of high levels of activity.

When Aramco priced its IPO last week, it aimed to raise $25.6bn for a market valuation of more than $1.7 trillion, beating Chinese tech firm Alibaba’s $25bn listing in 2014.

The debut propels the firm closer towards the $2 trillion price-tag long sought by Saudi Arabia‘s Crown Prince Mohammed bin Salman (MBS).

Gulf support

The government relied on mainly domestic and regional investors to buy a 1.5 percent stake in Aramco after lukewarm interest from abroad, with foreign investors citing various concerns that included governance issues and possible security threats.

Still, final orders surpassed $119bn, with authorities allowing lenders to boost loans beyond usual to support the sale.

“There are a lot of transparency issues in the disclosures and based on the expected listing valuation, it doesn’t seem one is getting paid for that uncertainty or opacity,” said Adam Choppin, an investment officer at FIS Group in Philadelphia, who decided not to buy shares.

“Reportedly, it seems that a good amount of local investors have been cajoled into participating, whereas no such leverage exists over foreign investors,” he told Bloomberg.

Aramco’s IPO was said to have relied on some of the kingdom’s richest families, who had members held in a hotel during a so-called crackdown on corruption in 2017, and also on cash from neighbouring allies such as the sovereign wealth funds of Kuwait and Abu Dhabi.

Gulf Cooperation Council (GCC) investors, however, are confident the stock price has plenty of room to increase, boosted by incentives that go from bonus shares to fast inclusion in emerging-market benchmarks.

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 Dalma Capital’s Cefaratti.

Giant in the room

The proceeds of the Aramco deal alone are equal to more than a decade of IPOs on Tadawul, the Saudi stock exchange, which has already said that the company’s weighting in the main local benchmark will be capped at 15 percent.

And 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.

Aramco has promised a bumper dividend payment of a minimum $75bn a year until at least 2024. That could make yields competitive with the likes of Exxon Mobil Corp and Royal Dutch Shell Plc, but also threatens to strain the world’s largest oil producer if prices fall.

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.

Aramco’s listing also comes nearly four years after Prince Mohammed unveiled his plan to sell a portion of the world’s most profitable company to raise funds to help diversify the kingdom away from oil.

Aramco did not name its investors during the IPO process, but sources familiar with the matter have told Reuters the Abu Dhabi Investment Authority (ADIA) and Kuwait Investment Authority (KIA) were among Gulf sovereign funds to buy shares.