Us-iran ten­sions: Saudi Aramco shares falls

The Punch - - INTERNATIO­NAL BUSINESS -

SAUDI Aramco shares fell to a new low on Wed­nes­day af­ter Iran launched mis­siles against United States tar­gets in Iraq, but Gulf debt mar­kets were fairly sta­ble, as some had feared stronger re­tal­i­a­tion from Iran.

Reuters re­ported that Saudi Aramco opened at 34 riyals ($9.06), its low­est since it be­gan trad­ing on De­cem­ber 11, putting the mar­ket value of the com­pany at around $1.8bn, down from a peak of $2.06tn on De­cem­ber 12.

Aramco’s shares fell in the fi­nal cou­ple of weeks of 2019 be­cause re­al­ity kicked in among in­vestors, but the re­cent weak­ness was caused by geopo­lit­i­cal ten­sions, said Ja­son Tu­vey, a se­nior emerging mar­kets economist at cap­i­tal eco­nomics.

Aramco shares are down al­most 12 per cent from a high of 38.70 riyals on De­cem­ber 12, but still above the IPO price of 32 riyals, which val­ued the com­pany at $1.7tn.

Gulf stocks were also pulled down by the con­flict be­tween the US and Iran, which at­tacked US tar­gets in Iraq on Wed­nes­day af­ter a US drone strike last week killed the Ira­nian com­man­der Qassem Soleiman.

But bonds is­sued by Gulf gov­ern­ments were fairly sta­ble, and credit de­fault swaps – used to in­sure against the risk of a sovereign debt de­fault – were un­changed.

“The Iran re­tal­i­a­tion seems to be a nonesca­la­tion, which is why the mar­kets are not widen­ing. I think once this is con­firmed, we might see a small relief rally in the re­gion,” said Zeina Rizk, direc­tor of fixed in­come as­set man­age­ment at Dubai’s Arqaam cap­i­tal.

Bonds is­sued by Saudi Ara­bia – Iran’s re­gional foe – were only marginally weaker, par­tic­u­larly on the long end of the curve. Five-year CDS con­ven­tional spreads were up only one ba­sis point, ac­cord­ing to IHS Markit.

Aramco said on Tues­day Gold­man Sachs may sta­bilise its shares, but so far no price sta­bi­liza­tion trans­ac­tion have oc­curred since the stock be­gan trad­ing. The sta­bil­i­sa­tion pe­riod ends on Thurs­day.

Aramco raised $25.6bn in its IPO, mak­ing it the big­gest flota­tion in the world, ex­ceed­ing Alibaba Group’s $25bn deal in 2014. But for­eign in­vestors were wary of in­vest­ing in Aramco be­cause of con­cerns over val­u­a­tions.

“The ten­sions be­tween the US and Iran is one of the risks peo­ple saw with con­cen­trated op­er­a­tions in the Mid­dle east,” said Oswald clint, se­nior an­a­lyst at San­ford c. Bernstein.

Aramco’s fa­cil­i­ties were at­tacked in Septem­ber in a strike that tem­po­rar­ily shut down 5.7 mil­lion bar­rels per day of out­put - more than five per cent of global oil sup­ply.

Morn­ingstar, which ini­ti­ated its cov­er­age of Aramco last month, said its fair value of Aramco was $1.4tn.

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