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

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%.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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".




Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Global Economy

What escalating tension between Iran and the US means for oil prices

The tension between the US and Iran is unlikely to mean all-out war in the Middle East. But markets may be getting a little too complacent about its e…
6 Jan 2020
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019

Rising output will keep a lid on the oil price

Oil exporters’ cartel Opec gave further encouragement to the bulls this month after agreeing to new production curbs.
20 Dec 2019

Most Popular


Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Small business

Furlough: what does it mean and how does it affect me?

Many companies have “furloughed” employees after they have shut down because of the coronavirus. But what does furlough mean and how does the scheme w…
30 Mar 2020

Buy stocks for the long term, but buy very carefully

After the wild ride of the last couple of weeks, equities are no longer expensive. But if you do decide to buy, be very, very careful indeed, says Mer…
30 Mar 2020