Tuesday , January 21 2020

Aramco soars in debut to hit market value of $1.88 trillion

Bloomberg

Saudi Aramco shares surged after the oil producer’s initial public offering, valuing the company at a record $1.88 trillion in the culmination of a four-year effort by the kingdom to list its crown jewel.
The stock jumped the daily 10% limit to 35.20 riyals when trading began at 10:30 am in Riyadh as Aramco board members, Saudi officials and invited guests cheered at a ceremony at the Fairmont Hotel in the kingdom’s capital. The shares stayed there through the market close, putting Crown Prince Mohammed bin Salman’s goal of a $2 trillion valuation within reach.
Aramco raised $25.6 billion in the biggest-ever IPO, selling shares at 32 riyals each and overtaking Microsoft Corp. and Apple Inc. as the most valuable listed company.
“Aramco should easily get to the $2 trillion valuation as soon as tomorrow; there is plenty of appetite for it,” said Marie Salem, the head of institutions at Daman Securities in Dubai.
“And more money should flow soon with the international index inclusions. The start couldn’t be better.”
Saudi officials pulled out all the stops to ensure that the stock traded higher after an offering that international investors largely rejected, citing the valuation and concerns including governance issues and possible security threats. The stock price also should be underpinned by demand from index-tracking funds, since Aramco will be added to emerging-market benchmarks.
“Aramco should easily get to the $2 trillion valuation as soon as tomorrow; there is plenty of appetite for it,” said Marie Salem, the head of institutions at Daman Securities in Dubai. “And more money should flow soon with the international index inclusions. The start couldn’t be better.”
Aramco, the world’s largest oil producer, is so big that it easily dwarfs the rest of the companies in the Saudi market, which have a combined value of about $500 billion. Adding in Aramco at its current market value, the kingdom’s bourse becomes the world’s seventh-biggest stock market, overtaking Canada, Germany and India. Saudi Arabia, though, only sold 1.5% of the company’s capital, meaning that barely any of its shares will trade.
Final orders surpassed $119 billion, with authorities allowing lenders to boost loans beyond usual to support the sale.
Aramco has promised a bumper dividend payment of a minimum $75 billion a year until at least 2024. That implies a yield of about 3.9%, much less generous than peers BP Plc and Royal Dutch Shell Plc, yet also high enough to threaten to stretch the company’s finances if crude prices fall.
The Aramco IPO proceeds will be transferred to the Public Investment Fund, which has made a number of bold investments, including into SoftBank Group Corp.’s Vision Fund and a $3.5 billion stake in Uber Technologies Inc. Saudi authorities flagged this week that “a lot” of the money will be spent in the domestic economy.
The proceeds of the Aramco deal alone are equal to more than a decade of IPOs on Tadawul, the Saudi stock exchange. The company will have a weight of 8% to 9% in the Tadawul All Share Index, said Khalid Al Hussan, chief executive officer of the bourse.
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.

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