The Saudi oil giant emerges among global list of publicly traded companies as the numero uno in two categories — despite global shift to cleaner fuels, region’s geopolitics, amid overseas investors concerns
DESPARDES — The world’s biggest IPO on record — $25 billion that Alibaba raised in 2014, was surpassed on Wednesday by Saudi Aramco.
The oil giant pulled off the biggest initial public offering in history, beating the Chinese ecommerce giant and raising $25.6 billion by selling shares in its giant state-owned oil monopoly.
Aramco said it sold 3 billion shares at 32 riyals ($8.53) each in its IPO. That equates to 1.5 percent of the company.
The IPO price valued Aramco at $1.7 trillion, which falls short of the Saudi royal family’s hopes for a valuation close to $2 trillion and raising $100 billion through the IPO.
Still, the initial offering makes it the most valuable publicly traded company in the world ahead of Apple, which is worth about $1.15 trillion.
According to Financial Times, Aramco’s listing is oversubscribed, soliciting bids of nearly 4.7 times what Riyadh said it wanted.
Its filings showed Aramco to be immensely profitable: It posted a profit of $68 billion for the first nine months of the year.
But Aramco’s earnings have declined, and risks like global warming and geopolitical instability have cast a pall over its prospects.
Aramco’s shares began trading Wednesday on the Riyadh stock market, the Tadawul.
More: Aramco’s I.P.O. was supposed to help the kingdom diversify away from oil; instead, the Saudis are becoming more leveraged to crude prices at a time when the global shift to cleaner fuels is accelerating. OPEC and Russia agreed to make further small cuts in oil production to firm up crude prices, according to The New York Times.
The FT said late on Thursday, the so-called Opec+ group appeared close to reaching a deal to cut supply by a further 500,000 barrels a day. Curbs of 1.2m b/d are already in place.
A stronger oil price would be expected to help support Aramco’s shares in the days after the start of trading, which is due next week.
Aramco’s push to the public markets has relied heavily on Saudi and regional investors amid big foreign institutions’ concerns over corporate governance and the geopolitical risk of putting money in the kingdom.
The oil giant’s executives” have in recent weeks also tried to drum up interest from state-backed funds in the Gulf, including Abu Dhabi — which was expected to invest $1.5bn. Kuwait was also considering putting in $1bn.”
According to FT, the kingdom sought to increase the company’s appeal by pledging a bumper annual $75bn dividend, changing tax and royalty rates as well as curbing long-term capital spending to help cash flows. Despite such enticements, overseas investors have remained cautious.
ANALYSIS BY Toronto-based Rashid Husain Syed who writes on energy for Globe and Mail, Toronto Star, BBC, Arab News:
Two very interesting, unconnected, yet, coordinated things happened simultaneously, on a day. On one hand, OPEC met in Vienna and Saudi Arabia went overboard to ensure a deal on much greater output cut, whereas, almost simultaneously, Aramco IPO was launched. At the end of the OPEC moot, after the deal, Prince Abdulaziz bin Salman underlined in Vienna that Aramco valuation would ultimately go beyond two trillion dollars. Aramco IPO needed higher oil prices, to ensure better yield and restraining output would result in higher crude prices. That was the link between the two. Aramco IPO is crucial to Vision 2030 of Prince Mohammed bin Salman and in fact to his political future too. In similar vein, Aramco valuation of $2 trillion also was equally important to him, as he had given his word on this figure, as the value of Aramco. Not an easy task. The IPO was taking place at a point in time, where a number of forces are lined up against it. There is a glut in market, new output is expected to come on stream, cheating of quotas within OPEC and non-OPEC producers is rampant, alternative energy sources are gaining in share, market has issues with Riyadh continuing to have controlling shares in Aramco while, Green movement is gaining in weight. In these circumstances, global investors didn’t appear too interested in Aramco IPO at $2 trillion. Eyes are now focused on medium to long term valuation of Aramco. Fingers remain crossed!