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

Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
The MoneyWeek Podcast: nuggets of positivity in an extended bear market
Investment strategy

The MoneyWeek Podcast: nuggets of positivity in an extended bear market

Merryn and John talk about he need for higher wages and lower house prices, and why the fact that this is the least dramatic bear market they’ve ever …
1 Jul 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022
Share tips of the week – 1 July
Share tips

Share tips of the week – 1 July

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
1 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
22 Jun 2022
The ten highest dividend yields on Aim
Income investing

The ten highest dividend yields on Aim

Rupert Hargreaves picks the highest-paying dividend stocks on Aim, London’s junior market for small and medium-sized growth companies.
29 Jun 2022