Key to Aramco’s calm lies with stock own­ers

The Daily Star (Lebanon) - - BUSINESS - By Fil­ipe Pacheco

Jan­uary de­liv­ered a hefty slice of volatil­ity for oil and global en­ergy stocks as the spread­ing coro­n­avirus shocked in­vestors. But in Riyadh, shares in Saudi Aramco fol­lowed a dif­fer­ent nar­ra­tive in their first full month of trad­ing.

The stock weath­ered the month – marked by the U.S. killing of an Ira­nian gen­eral and then the spread of the coro­n­avirus – much bet­ter than oil-ma­jor peers, end­ing well above the price set at its record ini­tial pub­lic of­fer­ing. Aramco re­treated 3.1 per­cent in Jan­uary, in con­trast with the 12 per­cent slump in Brent crude and a drop of more than 10 per­cent for global peers such as Chevron Corp., To­tal SA and Royal Dutch Shell PLC.

The rea­son for the out­per­for­mance lies within Saudi Ara­bia it­self. Shares in the oil gi­ant are mostly owned by lo­cals, who are less likely than for­eign money man­agers to sell in times of in­creased geopo­lit­i­cal ten­sion or dur­ing swings in the oil price. The gov­ern­ment re­lied heav­ily on lo­cal in­vestors and funds based in neigh­bor­ing Gulf monar­chies to sell about 1.7 per­cent of Aramco in the world’s big­gest IPO, with al­most five mil­lion in­di­vid­u­als – more than one-in-seven Saudi res­i­dents – plac­ing bids. In the end, for­eign­ers sub­scribed for 23.1 per­cent of the stock on of­fer.

UBS Group AG an­a­lysts Jon Rigby, Henri Pa­tri­cot and Kseniia Maslova wrote in a Jan. 29 note that Aramco’s largely do­mes­tic in­vestor base gives it “a likely higher de­gree of com­fort around geopo­lit­i­cal and coun­try risks.” They ini­ti­ated cov­er­age with a neu­tral rat­ing and a price tar­get of 34 riyals.

Aramco promised bumper div­i­dend pay­ments of at least $75 bil­lion a year un­til at least 2024, pro­vid­ing guar­an­teed re­turns no mat­ter what. In­vestors who bought dur­ing the IPO have an ad­di­tional in­cen­tive to hold on to their stock, as they are in line for bonus shares af­ter 180 days.

Fur­ther sup­port for Aramco could come from gov­ern­ment-con­nected funds mo­ti­vated to en­sure that such a prom­i­nent na­tional as­set as the state oil com­pany makes a suc­cess of its en­try to the mar­ket. Twenty-two out of 24 money man­agers in­ter­viewed in a sur­vey by Bloomberg be­fore Aramco’s de­but said they ex­pected this to hap­pen.

Aramco en­dured a tough test last month, touch­ing the low­est level so far in the days af­ter the U.S. killed Iran’s most prom­i­nent gen­eral in Iraq, trig­ger­ing fresh con­cerns of a wider con­flict in the Gulf re­gion. It later held its ground against a sell­off in oil and en­ergy shares trig­gered by fears that the coro­n­avirus could re­duce de­mand for crude.

On the fi­nal trad­ing day of Jan­uary, Aramco stock barely flinched fol­low­ing news of an at­tempted at­tack by Houthi rebels that tar­geted the oil com­pany’s fa­cil­i­ties, as the pro­jec­tiles were in­ter­cepted be­fore they could strike. And there’s an­other fac­tor ex­plain­ing Aramco’s rel­a­tive sta­bil­ity – it’s less heav­ily traded than some of the world’s largest oil stocks. An av­er­age of $106 mil­lion of the Saudi com­pany’s shares changed hands daily dur­ing Jan­uary. That com­pares with $1.1 bil­lion for Exxon­Mo­bil Corp., $259 mil­lion for To­tal and $152 mil­lion for Shell.

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