Saudi brokers monitor the stock market at the Arab National Bank in the Saudi capital Riyadh on December 11. (Fayez Nureldine/AFP via Getty Images)

Saudi Aramco Takes Off on First Day of Public Trading

Along with price of oil, experts say OPEC’s move to reduce production should increase share prices in newly floated firm – considered world’s most profitable

Shares in Saudi Aramco, considered the world’s most profitable company, soared to over 35 riyals on Wednesday, the first day of its public trading on the domestic stock exchange in Riyadh.

Originally priced at 32 riyals, or $8.53, per share for last week’s initial public offering (IPO), the jump reflected the maximum 10 percent the exchange allows for daily fluctuations.

The company stated that the local offering constituted 1.5% of the company’s capital, amounting to 3 billion ordinary shares.

The IPO valuation gave the company an indicated value of about $1.7 trillion, short of the $2 trillion envisioned by Saudi Crown Prince Mohammed bin Salman, although Wednesday’s jump in prices is seen as pushing it more in that direction.

The crown prince has been the prime mover behind the decision to take at least part of the company public for the first time in 43 years, ostensibly to raise cash for his Vision 2030 project, which is designed to help diversify the Saudi economy away from its reliance on crude oil and its byproducts.

Mohammed Al-Sabban, a former senior adviser to the Saudi petroleum minister, told The Media Line that based on last week’s agreement by the Organization of Petroleum Exporting Countries (OPEC), world oil production will be reduced. Research on the global market found that it would be risky to leave production levels undefined, especially during the spring season.

“The agreement came as a surprise to many countries, especially those that are members of OPEC. Saudi Arabia agreed to the decision under one condition – that all member countries… are completely committed,” Sabban said. “We [Saudis] won’t accept any violations by Russia, Nigeria, Iraq or Kazakhstan.”

He explained that Aramco has started developing renewable energy sources that in the long term will make it immune to oil price fluctuations.

“Aramco is no longer just an oil and gas production and exploration company. Rather, it has entered fields that enable a vertical integration strategy, such as petrochemicals and refineries, as well as manufacturing, which have increased its added value,” he said.

Sabban noted that Aramco’s initial public offering was the largest in history, raising even more than China’s online shopping company, Alibaba, did in 2014.

“The size and number of offerees for institutions and sovereign funds was six times more than the estimated size of shares for them,” he added.

Marwan Iskandar, a Beirut-based financial expert and chief economic commentator at the Lebanese newspaper An-Nahar, told The Media Line that Saudi Arabia agreed to OPECs decision in the hope that it would increase the price of Aramco’s shares.

“The estimate for [for total valuation, with] 5% of Aramco [shares to be traded both domestically and internationally], was $1.7 trillion [prior to the IPO], so Saudi Arabia couldn’t sell 5%…. The Saudis made $50 billion [on the IPO] instead of $85 billion,” Iskandar said.

The income from the IPO is destined for the kingdom’s sovereign wealth fund, he explained, noting that Riyadh will still have a deficit of $70 billion in its 2020 budget.

“The Saudis got less than what they wished for” with the Aramco IPO, he said. In addition, no foreign investment has come in since the IPO, as there is little international interest.

Mohammed Yasin, chief strategy officer at Abu Dhabi Capital, told The Media Line it was expected that the demand on Aramco shares would increase, “and it might continue increasing for two or three trading sessions.”

If this happens, he believes that that this could place the firm’s valuation more in line with that originally estimated by kingdom: $2 trillion.

“Aramco is viewed by investors as a petroleum-product company, so its share price is connected directly with the price of a barrel of oil. OPEC’s decision will directly affect that… [and] thereafter Aramco’s share price,” he said.

“Currently,” he added, “a barrel’s price ranges between $55 and $70. If the price increases to $70, it will contribute to increasing Aramco’s daily revenues.”

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