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…
28 Mar 2023
The top funds to invest in
Funds

The top funds to invest in

As market volatility and recessionary fears continue, here are the most popular funds, stocks and trusts investors are putting their money into
2 Mar 2023
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves takes a look at the companies with the highest dividend yields in the UK’s blue-chip index
27 Feb 2023
The outlook for Shell shares is mixed, despite bumper profits
Energy stocks

The outlook for Shell shares is mixed, despite bumper profits

With profits surging, it looks as if Shell is on a roll, but the company’s growth from here is hard to see as Rupert Hargreaves explains.
6 Feb 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall to around £2,000, based on average typical use, for the first time since 2022. We have all the details.
31 Mar 2023
Best areas for buy-to-let in the UK
Buy to let

Best areas for buy-to-let in the UK

If you’re thinking of getting a buy-to-let property you’ll want to know the areas in the country with the highest rental yields
29 Mar 2023
The best one-year fixed savings accounts - March 2023
Savings

The best one-year fixed savings accounts - March 2023

Earn over 4% on one-year fixed savings accounts.
30 Mar 2023