RIYADH/DUBAI: 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.
The Saudi Crown Prince has made Aramco’s initial public offering (IPO) the centre-piece 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% 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% 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 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% of it.