Aramco hits $2 trillion valuation target

Daniel Fowler
December 13, 2019

Saudi Aramco shares have surged again on their second day of trading, briefly hitting the $2 trillion (£1.5tn) valuation long wanted by crown prince Mohammed bin Salman.

The IPO has become synonymous with Saudi Arabia's controversial Crown Prince Mohammed bin Salman and his efforts to reshape the economy of the world's biggest oil exporter.

While hitting the target may vindicate Saudi officials, it could complicate any plans to sell part of Aramco's shares overseas as originally envisaged by Prince Mohammed in 2016, when he said a dual listing could raise as much as US$100 billion.

Wealthy Saudi families are reportedly under pressure from the government to invest in the Aramco stock, with nationalists calling it a patriotic duty.

"Saudi Aramco is the world's largest and most profitable oil company - size is not everything", they write, pointing out the risk of slow net income growth if oil prices remain unchanged. Compared to USA energy giant Exxon Mobil, the value is less than $ 300 billion.

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"For actively managed funds, one of the key considerations - aside from valuation - will be ESG (environmental, social and corporate governance) criteria", said Tim Love, Investment Director for emerging markets equities at GAM. It was up 5.8 per cent at 37.20 riyals at 1:54 p.m. local time in trading of 381 million shares, compared with 31.6 million for all of Wednesday. This made up most of the total turnover of the whole Riyadh market which was 18.5 billion riyals.

Still, the debut was cheered by Saudi and Gulf investors, who see the stock price supported by Aramco's guaranteed dividends, buying by index-tracking funds and the fact that the region doesn't have any other listed major oil companies.

And the listing of Aramco, with its huge capital value, boosts the Saudi bourse to the ranks of the world's top 10. His government had initially explored the possibilities of filing the IPO in NY or London, but mounting concerns over worldwide legal complications eventually forced Aramco to resort to a domestic listing, which helped secure investor interest in the early trading days but also limited that interest largely within Saudi borders.

Most of the early trading was small scale, of 1,000-1,500 shares, a trader in Riyadh, who asked not to be identified, said, adding this signalled that some retail investors were "happy with a 6 riyal per share gain".

"We shouldn't be reading too much into intraday dips".

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