Saudi Aramco hit the $2 trillion target sought by Saudi leader crown prince Mohammed bin Salman on Thursday as its shares clocked up a second day of gains, defying some scepticism about the state-owned oil firm’s long-term value.
Aramco’s shares closed at 36.8 Saudi riyals on Thursday, putting the company’s market value slightly below $2 trillion.The share price at market open earlier on Thursday had been 38.7 riyals, lifting market value above the $2 trillion price tag long sought by Saudi crown prince Mohammed bin Salman, Refinitiv data showed.
Salman made Aramco’s initial public offering (IPO) the centrepiece of his vision of diversifying the kingdom’s economy away from its dependence on oil by using the $25.6 billion raised to develop other sectors.But that is well below his plan in 2016 to raise as much as $100 billion via a blockbuster international and domestic IPO.
Riyadh scaled back its plans after overseas investors baulked at the proposed valuation and only 1.5 per cent of Saudi Arabian Oil Co (Aramco) shares were listed on the Riyadh stock exchange on Wednesday, a tiny free float for such a large company.
While a 10-per cent jump in the stock on its Wednesday market debut was hailed by the Saudi government as a vindication of it long-sought valuation, support was largely from loyal Saudi and Gulf investors, with some analysts saying it is worth less.
Aramco’s listing was front page news for almost all Saudi Arabia’s mainstream media on Thursday, with headlines such as ‘Aramco at the top of the world’ and ‘A dream come true’.But Bernstein analysts put Aramco’s value at around $1.36 trillion, which compares with US energy giant Exxon Mobil’s market capitalisation of less than $300 billion.
‘Saudi Aramco is the largest, most profitable oil company in the world — but size is not everything,’ they wrote, flagging the risk of slow net income growth if oil prices stay flat.
An International Energy Agency (IEA) report on Thursday pointed to pressure on oil prices, predicting a sharp rise in global inventories despite an agreement by OPEC and its allies to deepen output cuts as well as lower expected production by the US and other non-OPEC countries.
Bernstein said that Aramco should trade at a discount rather than a premium to international oil majors, with corporate governance ‘the key risk’ as the Saudi government owns more than 98 per cent of it.
‘For actively managed funds, one of the key considerations – aside from valuation – will be ESG (environmental, social and corporate governance) criteria,’ said Tim Love, investment director for emerging markets equities at GAM.
‘The main concerns here are lagging corporate governance standards as well as environmental issues since an investment in Aramco would obviously have a significant impact on a portfolio’s CO2 emissions,’ Love added.
Aramco, whose shares gained the maximum 10 per cent allowed by the Riyadh exchange on their first day of trading, hit 38.7 riyals ($10.32) on Thursday, lifting its market value above $2 trillion. The shares were trading at 37.10 riyals at 10:26 GMT, a rise of 5.5 per cent from Wednesday’s close.
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