Saudi Arabia's Aramco IPO falls short of expectations

Aramco, Saudi Arabia’s state-owned oil giant, has finally made it to market. But the regime struggled mightily to get it there. 

Saudi Crown Prince Mohammad bin Salman bin Abdulaziz Al Saud © Shutterstock

Crown Prince Mohammed bin Salman:has he made Riyadh more repressive?

Saudi Crown Prince Mohammad bin Salman bin Abdulaziz Al Saud © Shutterstock

The world's biggest initial public offering (IPO) has finally reached the Saudi stock exchange, say Kate Kelly and Stanley Reed in The New York Times. The sale of 1.5% of Saudi Arabia's state owned oil company, Saudi Aramco, early this week raised $25.6bn, eclipsing the $25bn raised by the Chinese online firm, Alibaba on the New York Stock Exchange in 2014 and making the entire company worth $1.7trn. The shares bounced by 10% on their first day, boosting the firm's value to $1.9trn.

Context is everything

There are many reasons why the Aramco IPO has fallen short of expectations, says George Hay on Breakingviews. Firstly, the $2trn valuation was always optimistic given Aramco's "myriad environmental, social and governance headaches". The backlash after the brutal murder of journalist Jamal Khashoggi by agents of the Saudi crown meant that the idea of listing it abroad had to be scrapped. The "hubris" of the Saudi government's decision to revive the IPO in the face of an Iranian drone strike on Aramco's facilities also meant that "foreign investors largely held back", forcing Aramco to reduce the portion of shares floated to 1.5%.

Despite the problems, the Saudi energy minister has predicted that it will hit a value of $2trn sooner rather than later and he may be right, says Bloomberg's Liam Denning. The kingdom is pulling out every stop to make sure that the price of oil is as high as possible, starting with a recent cut in oil production, in order to offset the impact of high US shale oil, which remains abundant. Meanwhile, Aramco's inclusion in emerging market indices "will undoubtedly suck some passive money toward it". Still, oil will have to go up to around $100 a barrel to justify a valuation at that level.

The longer-term implications of the deal for Saudi society are also unclear, says the Financial Times. The fact that "for all the doubts it is finally happening" has proved to some that "nothing is off-limits" in the era of Crown Prince Mohammed bin Salman. Still, even if the regime has carried out some gradual economic and social liberalisation, business is still "reeling" after the imprisonment of 300 princes and tycoons last year, while separate crackdowns targeting bloggers, female activists, journalists, clerics and academics have reinforced the belief that "Riyadh has become more repressive under Prince Mohammed".

Recommended

Best junior stocks and shares ISA platforms
Isas

Best junior stocks and shares ISA platforms

A junior stocks and shares ISA is a great way to save for your child tax-efficiently. But it can be confusing deciding which investment platform to ch…
25 Nov 2022
Share tips of the week – 25 November
Share tips

Share tips of the week – 25 November

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
25 Nov 2022
Investing in a recession: 5 moves investors should make now
Investment strategy

Investing in a recession: 5 moves investors should make now

As we enter a recession, here’s what investors should do with their portfolios.
23 Nov 2022
Three of emerging Asia’s best value stocks
Share tips

Three of emerging Asia’s best value stocks

If you’re looking to boost your investment in Asia, then here are the stocks you should be considering, says Nitin Bajaj of the Fidelity Asian Values …
22 Nov 2022

Most Popular

Wood-burning stove vs central heating ‒ which is cheapest?
Personal finance

Wood-burning stove vs central heating ‒ which is cheapest?

Demand for wood-burning stoves has surged as households try to reduce their heating costs this winter. But how does a wood burner compare with central…
21 Nov 2022
Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
Santander launches new bank account – is it any good?
Bank accounts

Santander launches new bank account – is it any good?

Santander’s new accounts gives you up to £20 cashback a month and 4% interest rate on savings.
25 Nov 2022