Monday, December 9, 2019

The Saudi Aramco IPO - Daily Briefing

  • IPO

Saudi stocks rise on oil price ahead of Aramco debut

Saudi Arabian stocks have made a sharp gain ahead of the market debut of Saudi Aramco on Wednesday, while the country’s oil minister has said he expects the valuation of the world’s biggest and most profitable company to reach $2 trillion in the coming months. 

The main index for the Tadawul market, where Saudi Aramco will be listed, rose 2.4% on Sunday following a rise in global oil prices, prompted by a new production cutting deal among the OPEC+ alliance. The grouping, which includes Saudi Arabia and Russia, said on Friday it would reduce production by an extra 500,000 barrels a day in the first quarter of 2020.

Meanwhile, Saudi energy minister Prince Abdulaziz bin Salman – the half-brother of Crown Prince Mohammed bin Salman – was quoted by Bloomberg as saying he expected Saudi Aramco’s valuation to rise to over $2 trillion within “a few months”, from the IPO valuation of $1.7 trillion.

The stock will see some immediate support from the recent rise in global oil prices, and in the medium term from Saudi Aramco’s pledge to pay out a base dividend of $75 billion in 2020. Retail investors are also incentivized to hold by the promise of 10 percent bonus shares for owning the stock for 180 uninterrupted days following the IPO.

Expectations are also growing that Saudi Aramco will be fast tracked onto the MSCI, FTSE and S&P emerging market indices within two weeks of its listing, which analysts predict will lead to incremental buying of as much as $3.4 billion by passive funds.

The $25.6 billion offering was over 4.6 times oversubscribed, with the $17 billion institutional tranche receiving orders of $106 billion. A 15% ‘greenshoe option’ – a provision to sell investors more shares to IPO investors– is likely to be taken up, which would increase the deal size to $29.4 billion.