Saudi Arabia’s state-owned oil company, Saudi Aramco, officially became the world’s most valuable company yesterday, after its floating on Riyadh’s stock exchange, the Tadawul, saw its shares surge 10% above their initial valuation within seconds.
Investors rushed to buy a piece of the world-record initial public offering (IPO). One and a half per cent of Aramco was made public, and the 10% price jump - the maximum permitted - means the company is now valued at $1.88 trillion.
The shares opened at 32 riyals each, and closed at 35.2 riyals ($9.39).
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The solid showing on its first day of trading means the oil giant is confident of closing in on the $2 trillion valuation long coveted by Saudi Arabia’s de facto ruler, Crown Prince Mohammed bin Salman.
Looking to recover his reputation following the murder of Jamal Khashoggi by Saudi agents, the valuation has become a point of pride for the prince. Former Aramco chairman and oil minister Khalid Al-Falih was sacked from his post earlier this year for suggesting the company might struggle to reach the $2 trillion mark.
“It’s a great day for Saudi Arabia and the leadership of Saudi Arabia and for the people of Saudi Arabia. It’s a D-Day for Aramco, it’s a day of reckoning and vindication,” said Saudi energy minister Prince Abdulaziz bin Salman.
The company is the backbone of its homeland’s wealth, and the royal household has declared its intention to plow the funds generated back into non-oil domestic industries in an attempt to modernise and diversify the economy.
The positive news was somewhat tarnished by the revelation that most investors had been domestic, leading to speculation that the Saudi government had pulled political levers to inflate the price.
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Indeed, the initial plan in 2016 had been to sell a 5% stake in Aramco, in major bourses like London and New York, but the Saudi government scaled back their plans after investors repeatedly warned them their valuation was overblown, deciding to float only 1.5% closer to home.
The Wall Street Journal reports that 77% of all investment came from Saudi sources, and of the 23% of non-Saudi share purchases, many were regional.
“The new IPO is a shadow of the initial plan, but still allows the crown prince to claim victory,” Bloomberg claims.
However The Guardian’s financial editor Nils Pratley is not so sure.
“There’s no shame in keeping things local, but Riyadh is creating a long-term problem for itself,” Pratley says. “It still needs to get rid of far bigger chunks of Aramco to fund a diversification of the economy, and international investors will be required eventually. Those investors, though, are unlikely to be impressed by a stage-managed exercise in pumping up the valuation.”
