Tuesday, December 10, 2019

The Saudi Aramco IPO - Daily Briefing

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Oversubscribed Aramco stock could see a boost on first day of trading

Shares in Saudi Aramco could rise on their trading debut on Riyadh’s Tadawul exchange Wednesday due to demand from retail and institutional investors who missed out on the IPO.

When trading begins on Wednesday, Saudi Aramco shares will be represented by the ticker symbol “2222”. The Tadawul exchange also announced that it is imposing a +/- 10% limit on daily price fluctuation.

Saudi Aramco sold $25.6 billion of shares at 32 Saudi Riyals ($8.53) each - a price at the top end of the marketed range - with the company receiving $119 billion of orders. Almost five million individual investors, amounting to approximately 15% of Saudi Arabia’s total population, applied for shares – despite Saudi Arabia opting to list only 1.5% of the company.

The extent of oversubscription on the primary market suggests that demand on the secondary market will be high. Those already convinced by Saudi Aramco’s globally unique scale and profitability have been given more reasons to invest by a promise of bonus shares for early movers and a pledge by the company’s Board to pay a $75 billion in 2020, with no reduction countenanced until at least 2024.

Even if the government chooses to exercise a “greenshoe” option of selling up to 15% more shares than initially planned, as some bankers involved in the IPO have said it might, it would do little to satisfy the appetite of frustrated investors hungry for exposure to one of the world’s biggest and most closely watched companies.

Although the long-term performance of Saudi Aramco shares will depend on, among other things, oil prices, many believe that Saudi Aramco’s vast, low-cost reserve base give it an edge even in an environment in which long-term oil demand may come under pressure.

In an interview on Monday, Saudi finance minister Mohammed Al Jadaan said that Saudi Arabia’s sovereign wealth fund expects to allocate “a lot” of the $26 billion plus proceeds from Saudi Aramco’s IPO to investments in the domestic economy. The IPO has long been seen a potential fillip to the Saudi economy and a source of capital for ambitious projects in non-energy sectors, and the government has been keen throughout the process to show how it is supposed to benefit ordinary Saudis.