Thursday, December 12, 2019

The Saudi Aramco IPO - Daily Briefing

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Aramco closes in on the long-coveted $2 trillion price tag

Saudi Aramco is closing in on the $2 trillion valuation coveted by Saudi Arabia, following a 10% surge on its trading debut on Wednesday.

As Saudi Aramco’s chairman, Yasir al-Rumayyan, and senior Tadawul executives rang the bell to start trading on Wednesday, the audience gasped when they saw shares in the world’s largest and most profitable company had risen to their maximum intra-day trading limit.

The start of trading in Riyadh marked the end of a four-year effort by the kingdom to list its crown jewel. And the dramatic gain by the stock, due to scarcity value and high investor demand following an IPO that sold only a 1.5% stake to the public, raised the company’s market capitalisation to approximately $1.88 trillion.

Analysts have pointed to strong dividend visibility, potential for gradual growth in dividends and for special dividends, potential for expansion for downstream operations, and a stable global oil price environment as supportive factors for the stock.

The oil-giants’ first day of trading was widely seen as a success for both the company and Saudi Arabia. Reflecting the interest from investors, 766.8 million shares had changed hands in the hour-long pre-market auction, nearly half early trading volume for the market. The Tadawul all share index, which has not yet included Saudi Aramco, closed up 0.83%.

The early share price gain solidifies Aramco’s position as the most valuable listed company. Its value is more than six times the US’ Exxon Mobil; more than twice Saudi Arabia's annual gross domestic product; and easily surpasses U.S. tech giant Apple's $1.2 trillion price tag.

Investment index providers MSCI, S&P Dow Jones and FTSE Russell, have all said they will fast-track the inclusion of Aramco shares into their indices, which would mean