Saudi Aramco gains 10% in debut to clinch top seat at 1.8 trillion dollars

Saudi Arabia’s oil company Aramco gained 10% in its first moments on the stock market in a dramatic debut that held until closing and pushed its value up to 1.88 trillion dollars (£1.43 trillion), surpassing Apple as the largest listed company in the world.

Trading on the Saudi Tadawul stock exchange came after a mammoth 25.6 billion (£19.5 billion) initial public offering that set the record as the biggest in history, overtaking the 25 billion dollars raised by China’s Alibaba in 2014.

Demand during the bookbuilding period for Aramco’s IPO reached 106 billion dollars, with most of that generated by Saudi investment.

Aramco, owned by the state, has sold a 1.5% stake in the company, pricing its shares before trading at 32 Saudi riyals, or what is £6.49.

Saudi Aramco
Saudi Aramco

At a pre-trading auction earlier in the morning, bids for Aramco had already reached the 10% limit on stock price fluctuation allowed by Tadawul. That pushed the price of shares in opening moments to 35.2 riyals, or £7.14 a share, where it held until closing.

A stunning attack in September blamed on Iran struck Aramco’s main processing facility, but the company remains attractive to many local investors.

Aramco is worth more that the top five oil companies – Exxon Mobil, Total, Royal Dutch Shell, Chevron and BP — combined. It also has one of the lowest costs of production.

Internationally, investors have been spooked by the geopolitical risks associated with Aramco, as well as the Saudi crown prince’s policies and the stain on the kingdom’s reputation following the killing of Saudi writer Jamal Khashoggi by Saudi agents in Turkey last year.

Rather than float internationally, Aramco sold locally 0.5% of its shares to individual retail investors — most of whom are Saudi nationals — and 1% to institutional investors, most of which are Saudi and Gulf-based funds.

The retail portion was limited to Saudi citizens, residents of Saudi Arabia or nationals of Gulf Arab states.

Saudi Aramco
Saudi Aramco

Crown Prince Mohammed bin Salman plans to use the money raised from the sale of a sliver of the kingdom’s crown jewel to diversify the country’s economy and fund major national projects that create jobs for millions of young Saudis entering the workforce.

Less than a quarter of institutional investment generated in the IPO – 23% – was raised from non-Saudi investors, according to lead adviser Samba Capital.

Saudi companies and government institutions raised 51% of the overall demand, with public and private funds contributing to the remaining 26%, Samba Capital said.

“They have had to launch the IPO on their own stock exchange as the valuation was unlikely to be achieved elsewhere,” said John Colley, associate dean at Warwick Business School in the UK.

He said the surging price on launch suggests buying may be from those affiliated to the crown prince.

In the lead-up to the flotation, there had been a strong push for Saudis, including princes and businessmen, to contribute to what is seen locally as a moment of national pride, and even duty.

A brief ceremony as trading started on Wednesday saw a countdown in Arabic, the sounding of a bell, a light show with music and applause all around.

At the celebration at the Fairmont hotel in Riyadh, Aramco chairman Yasir Al-Rumayyan, described the sale as “a proud and historic moment for Saudi Aramco and our majority shareholder, the kingdom”.

He said it demonstrates further significant progress towards Saudi Arabia’s transformation and economic growth.