Saudi Aramco made its stock market debut on the Tadawul exchange in Riyadh, Saudi Arabia on Wednesday — the world’s largest share sale.
It is selling just 0.5% of its shares to individual investors and a further 1% to institutional investors. Most of them are Saudi nationals or based in the Gulf.
Its shares surged 10% above their initial public offering (IPO) price — the maximum that is permitted daily — helping boost the company’s market value that is more in line with the valuation long-touted by Saudi Crown Prince Mohammed bin Salman. Saudi Aramco shares hit 35.2 riyal (£7.1; $9.39) each, up from the IPO price of 32 riyals.
A preliminary valuation on Saudi Arabia’s state-owned oil company put Saudi Aramco between $1.6 trillion (£1.22 trillion) and $1.7 trillion. Over the last week, it raised $25.6bn from investors.
But the valuation puts the firm, which produces more than 10% of crude oil supply globally, less than Crown Prince Mohammed bin Salman’s target of $2tn
Only two days ago, analysts at US financial services giant Morningstar said the “fair value” of the business was more around $1.4tn. This is $300bn below the $1.7bn valuation Saudi Aramco is targeting in its upcoming initial public offering (IPO).
“Our valuation fails to reach the rumoured targeted valuation of $2tn,” analysts Allen Good and Marloes Spanjersberg wrote in a note sent to clients on Monday.
Is Saudi Aramco over-valued?
In 2016, Prince Mohammed bin Salman had said he had hoped to float about 5% of Aramco via a local and international listing, with a company valuation of at least $2tn (£1.5tn). There has been a race between mainly New York, London, and Hong Kong over who will snap up the $100bn slice of the pie because the deal was touted to generate $1bn in fees.
However, the IPO has posed some serious questions over transparency and realistic valuations and the company has failed to convince investors of the multi-trillion dollar valuation.
While Morningstar’s valuation raised warning bells this week, surveys from three years ago show that analysts have been at odds with Aramco’s own valuation.
For example, a survey by regional investment bank EFG Hermes three years ago showed fund managers and institutional investors expect Aramco to have a market cap of $1 trillion to $1.5 trillion. Another report by global consultants Sanford C. Bernstein & Co and Rystad Energy AS, have also suggested a valuation closer to $1 trillion.
After initially wanting to launch an IPO in 2019, Aramco chief executive Amin Nasser said in January this year that Aramco would be ready to float by 2021.
It then made a rare financial disclosure in August to bolster renewed interest in a potential IPO from foreign investors. Its results showed a 12% slide in profit in its first half results statement but it still makes more money than any other company in the world.
The oil price has fallen to about $58 per barrel (CL=F; BZ=F), down from $69 to $66 per barrel in the same period in 2018. The energy titan says this is a key reason for why net income has dropped 4%, to $46.9bn.