The world’s most valuable firm Saudi Aramco had a record-setting market debut on Wednesday, edging ever closer to that crucial $2 trillion valuation mark mooted by the Saudi Crown Prince Mohammed bin Salman in 2016.
The oil colossus opened 10 per cent higher at 35.2 Saudi riyals ($9.39) on the kingdom’s Tadawul stock exchange, above the set price of 32 riyals, giving it a valuation of $1.88 trillion.
“The momentum of buying the stock is skyrocketing and expected to continue throughout the week,” said Mohamed Zidan, Chief Market Strategist at ThinkMarkets. “For now, I expect the range of the stock would be between 38-45 riyals.”
Trading was stopped for the day after opening up 10 per cent, which is the maximum a stock price is permitted to spike in a day, a limitation set by Tadawul. Prices are again expected to jump a further 10 per cent on Thursday, Zidan said, which would again drive it to immediately limit-up and end trading for the day.
Aramco, officially known as Saudi Arabian Oil Co., started trading on the local bourse at 0730 GMT under the symbol ‘2222’. In expectation of higher levels of activity in the first hour of trade, Tadawul permitted an extra 30 minutes after the market opened for Aramco investors to place their bids.
The day was coined “historic” by Tadawul chair Sarah Al-Suhaimi and Aramco chair Yasir Othman Al-Rumayyan during a ceremony marking the firm’s first day of trading. The listing helps the exchange take a position among the Top 10 globally in terms of market value.
“We are happy with the results today and we have seen the market response,” said Aramco CEO Amin Nasser after the company’s shares began trading, while thanking the new shareholders for their “confidence and trust” in the entity.
Analysts flagged that there is enough appetite among investors to help Aramco easily get to the $2 trillion valuation over the next couple of days, while adding that the stock value would eventually stabilize with a number of risks being priced in.
“One of the advantages of the stock is its dividend yield, which would diminish with price appreciation. That in turn could stabilize the price and put pressure on high demand,” Zidan said.
“As is the case with other companies involved in exploration and production, Saudi Aramco’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces,” said Nilanjan Choudhury, a financial blogger at Zacks Equity Research.
“The firm, which claims to be ‘the cleanest major oil company’ on the back of zero gas flaring and sophisticated field technology, will have to deal with pressure from environmentalists to cut emissions and curb climate change.”
The Crown Prince had been hoping the proceeds from the offering will help finance his Vision 2030 proposal of diversifying the Saudi economy away from oil, a plan which also widened the kingdom’s 2020 budget deficit expectations to 187 billion riyals versus a projected deficit of 131 billion riyals in 2019.
“One big unknown is what the government plans to do with the proceeds from the Aramco IPO,” said Jason Tuvey, a senior emerging markets economist at Capital Economics. “If the proceeds are retained by the government, we suspect that they will be used to finance the budget deficit.”
“But there is a good chance that at least some of the funds are transferred to the sovereign wealth fund, the Public Investment Fund, in order to fund domestic projects, which may help to soften the blow from central government austerity.”