Dubai/London — Saudi Aramco shares surged after the oil producer’s initial public offering (IPO), valuing the company at a record $1.88-trillion in the culmination of a four-year effort by the kingdom to list its crown jewel.

The stock jumped the daily 10% limit to 35.20 riyals when trading began at 10.30am in Riyadh as Aramco board members, Saudi officials and invited guests cheered at a ceremony at the Fairmont Hotel in the kingdom’s capital.

Aramco raised $25.6bn in the biggest IPO yet, selling shares at 32 riyals each and valuing the company at $1.7-trillion, overtaking Microsoft and Apple as the most valuable listed company.

The start of trading in Riyadh marks the end of a saga that’s been intertwined with Crown Prince Mohammed bin Salman’s rise to global prominence and his Vision 2030 plan to reform the Saudi economy. First announced in an interview with The Economist in January 2016, the IPO came after a tumultuous period that included the murder of government critic Jamal Khashoggi and the imprisonment of prominent Saudis in Riyadh’s Ritz Carlton. The sale ultimately fell short of the $100bn international offering with a valuation of $2-trillion that the prince once proposed.

Saudi officials pulled out all the stops to ensure that the stock traded higher after an offering that international investors largely rejected, citing the valuation and concerns including governance issues and possible security threats. The stock price should be underpinned by demand from index-tracking funds, because Aramco will be added to emerging-market benchmarks.

“Aramco should easily get to the $2-trillion valuation as soon as tomorrow; there is plenty of appetite for it,” said Marie Salem, the head of institutions at Daman Securities in Dubai. “And more money should flow soon with the international index inclusions. The start couldn’t be better.”

Aramco, the world’s largest oil producer, is so big that it easily dwarfs the rest of the companies in the Saudi market, which have a combined value of about $500bn. Adding in Aramco at its current market value, the kingdom’s bourse becomes the world’s seventh-biggest stock market, overtaking Canada, Germany and India. Saudi Arabia, though, only sold 1.5% of the company’s capital, meaning that barely any of its shares will trade.

Final orders surpassed $119bn, with authorities allowing lenders to boost loans beyond usual to support the sale.

Not everyone is convinced the share price surge will last. Many international investors are avoiding the stock because of environmental, social and governance (ESG) concerns, while others say the company is overvalued given its dividend yield versus peers.

“Fundamentally, especially when taking ESG considerations into account, the valuation is stretched,” said Siddharth Sanghvi, head of emerging-markets equity research at Amundi.

Aramco has promised a dividend payment of a minimum $75bn a year until at least 2024. That implies a yield of about 3.9%, much less generous than peers BP and Royal Dutch Shell, yet also high enough to threaten to stretch the company’s finances if crude prices fall.

Aramco’s IPO relied on some of the kingdom’s richest families, who had members detained in the Ritz hotel during a so-called crackdown on corruption in 2017, and also on cash from neighbouring allies such as the sovereign wealth funds of Kuwait and Abu Dhabi. Gulf Co-operation Council (GCC) investors are confident the stock price has plenty of room to increase, boosted by incentives that go from bonus shares to the fast inclusion in emerging-market benchmarks.

Wealthy Saudis were pressed to buy shares after the start of trading to make the IPO a success, the Financial Times reported on Tuesday.

A surge in early trading validates “our thesis that Aramco’s pricing fell short of $2-trillion to leave upside on the table for Saudi and GCC investors, allowing them to benefit from the listing of Saudi’s crown jewel”, said Zachary Cefaratti, CEO at Dalma Capital Management, which bought shares in the IPO through three funds.

Goldman Sachs Group, acting as share stabilising manager, has the right to exercise an option to sell another 450-million shares. It could be executed in whole or in part up to 30 calendar days after trading begins. The previous largest IPO, Alibaba Group Holding, rose 38% in its trading debut in 2014.

The Aramco IPO proceeds will be transferred to the Public Investment Fund, which has made a number of bold investments, including into SoftBank Group’s Vision Fund and a $3.5bn stake in Uber Technologies. Saudi authorities flagged this week that “a lot” of the money will be spent in the domestic economy.

The proceeds of the Aramco deal alone are equal to more than a decade of IPOs on Tadawul, the Saudi stock exchange, which has already said that the company’s weighting in the main local benchmark will be capped at 15%.

And even though Aramco’s free float is among the lowest globally, the deal opens up one of the world’s most secretive companies, one that bankrolled Saudi Arabia and its rulers for decades but until this year had never published financial statements or borrowed in international debt markets.


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