Saudi Oil Giant World’s Most Valuable Company Upon IPO

December 11, 2019 Updated: December 11, 2019
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Saudi Arabia’s state oil company, Aramco, has quickly become the world’s most valuable listed company upon offering a small share of itself for sale to investors.

The long-prepared initial public offering (IPO) took place last week, when 1.5 percent of Aramco sold for 32 rials (about $8.50) per share, valuing the company at $1.7 trillion.

On Dec. 11, when the shares opened for public trading at the Tadawul exchange in Riyahd, the price climbed by 10 percent, the maximum the stock exchange allows for one day of trading. That puts Aramco at $1.88 trillion valuation, far above the previously most valuable listed company, Apple, which stood at $1.19 trillion on Dec. 11.

“It’s a great day for Saudi Arabia and the leadership of Saudi Arabia and for the people of Saudi Arabia,” Energy Minister Prince Abdulaziz bin Salman told Reuters in Madrid. “It’s a D-Day for Aramco, it’s a day of reckoning and vindication.”

Saudi Crown Prince Mohammed bin Salman, de facto ruler of the kingdom, aimed for a $2 trillion price tag for Aramco. The company may surpass that valuation as soon as Dec. 12.

The $25.6 billion cashed in from the IPO will be mostly used for economic projects to diversify the Saudi economy, which has long relied heavily on oil exports.

Bin Salman initially planned to raise $100 billion by selling 5 percent of Aramco, but the plan has been postponed and downscaled due to a lack of buy-in from investors beyond the region. In the end, 77 percent of the IPO stock was bought by Saudi investors.

“We are hopeful that Saudi Aramco uses the Tadawul listing as a springboard to an eventual international listing,” said Bassel Khatoun, managing director, frontier and MENA at Franklin Templeton Emerging Markets Equity.

Aramco was the most profitable company in the world last year, earning $111 billion in net income. It has exclusive rights to produce and sell the kingdom’s energy reserves and was founded in 1933 with America’s Standard Oil before becoming fully owned by Saudi Arabia four decades ago.

To encourage Saudi citizens to buy and keep hold of Aramco stock, the company says it will pay a dividend to shareholders of at least $75 billion. Saudi citizens who hold their shares for six months from the first day of trading can also receive up to 100 bonus shares, or one for every 10 held. The government also made it easier to access credit for Saudis to buy stock.

The result was that just over 5 million individuals, nearly all of them Saudi nationals out of a population of around 20 million citizens, generated subscriptions of $13 billion.

Saudi Arabia has long relied on oil to keep its state budget afloat, but with the proliferation of fracking, global supply has increased and pushed oil prices down.

The kingdom needs oil prices at $87 a barrel to balance its budget and climb out of deficit, according to Monica Malik, chief economist at Abu Dhabi Commercial Bank. The price is currently below $64 per barrel.

Aramco’s debut comes as oil prices are being supported by a Saudi-orchestrated move by 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 shares began trading half an hour after the market opened as the bourse allowed extra time for investors to place bids in the “opening auction” in anticipation of high demand.

Some 1.1 billion riyals’ worth of Aramco shares changed hands, more than a quarter of the Saudi market’s traded value.

Aramco stock will become part of Tadawul index by next week and global benchmarks such as MSCI and FTSE later this month, which analysts said should fuel demand, particularly from investors who track such indexes.

Reuters and The Associated Press contributed to this report.

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