Saudi Aramco's shares jumped 10 per cent at market open on Thursday to 38.7 riyals, passing $2 trillion in market value, before retreating in early trading.
Shares in the oil giant were trading around 38 riyals by 12:14pm UAE time, up about 8 per cent from their first day of trading on Wednesday when they surged 10 per cent, the daily limit of the kingdom's Tadawul stock exchange.
"The opening days of trading demonstrated the strength of Saudi's capital markets and the robust demand for shares of Aramco, demonstrating that the market agrees with the $2 trillion valuation," said Zachary Cefaratti chief executive of Dubai-based Dalma Capital which subscribed to the world's largest public offering. "The successful IPO and strong performance will awaken the 'animal spirits' of the market, and open investors eyes to the investment opportunities the kingdom has to offer the world. This IPO is only the beginning."
The IPO of the world's most profitable company received $119 billion in orders for the $25.6 billion offering, a 465 per cent oversubscription, that eclipsed Alibaba’s previous $25bn record for what was largest listing to date in 2014.
A total of 1.5 per cent of the company, or about 3 billion shares, were offered to retail and institutional investors and the company may have a second listing in the future on a foreign exchange. With the listing of Aramco, the kingdom's benchmark Tadawul index is now the ninth-largest globally. The market capitalisation of the exchange prior to the listing was about $500bn.
The kingdom's companies, including listed companies, private companies, insurance companies and authorised persons, were allocated 37.5 per cent of the tranche shares. Public funds, private funds and funds managed by authorised persons received 26.3 per cent, while government institutions of Saudi Arabia were allocated 13.2 per cent. Foreign investors including GCC investors, qualified foreign investors and non-resident investors through swap agreements received 23.1 per cent.
The listing of Aramco "brings several intangible gains for the country and the region," said Timothy Fox chief economist of Emirates NBD. "It will make governments more comfortable in speeding up privatisation plans, attract newer set of investors’ in the region and give a fillip to already taken tentative steps towards transparency and higher standards of corporate governance."
Saudi Aramco is the world's most profitable company, earning $68bn for the first nine months of the year on revenue of $217.1bn. A debut $12bn bond issued by the company in April was more than ten-times oversubscribed. Aramco accounts for one in every eight barrels of crude produced. In 2018, it produced 13.6 million barrels per day of oil equivalent, including 10.3 million bpd of crude.
Mr Cefaratti echoed Mr Fox’s views on the wider implications of Aramco’s listing to the kingdom’s overall economic diversification agenda.
"The most meaningful aspect of the IPO is not the pricing, valuation, size of the deal or oversubscription - but that this has happened, and what that means for Saudi Arabia and the GCC," he said. "Saudi Arabia opening the books of its crown jewel is an important step in diversifying and modernizing its economy. Beyond this, we believe the listing of Aramco will help foster geopolitical stability in the region – mark-to-market provides a strong incentive to avoid armed conflict, implement robust governance practices and foster a steady geopolitical environment conducive to growth."
