Saudi Aramco faces tough test less than a month af­ter IPO

Muscat Daily - - BUSINESS -

Dubai, UAE - Saudi Aramco’s sta­tus as an oil-pro­duc­ing be­he­moth lo­cated in one of the world’s most tur­bu­lent re­gions al­ways marked it as likely to suf­fer bouts of volatil­ity.

But few could have ex­pected the stock to face so stern a test less than a month af­ter the com­pany’s his­toric US$25.6bn ini­tial pub­lic of­fer­ing (IPO).

The world’s most prof­itable com­pany ex­tended de­clines on Mon­day af­ter drop­ping to its low­est clos­ing price yet a day ear­lier, as the US killing of Iran’s most prom­i­nent gen­eral last week trig­gered fresh con­cern of a wider con­flict in the Gulf re­gion. The move sug­gests that rising oil prices - Brent crude has climbed above US$70 a bar­rel for the first time since May on a clos­ing ba­sis - aren’t nec­es­sar­ily a boon for the en­ergy giant.

Aramco fell 0.6 per cent as of 10:32am in Riyadh to SAR34.35, nar­row­ing its gain to 7.3 per cent since it listed at SAR32 on De­cem­ber 11. It tum­bled 1.7 per cent on Sun­day.

While Aramco has per­formed bet­ter than Saudi Ara­bia’s bench­mark Tadawul in­dex this week, the sud­den rise in geopo­lit­i­cal ten­sion comes just as the end of the sta­bil­i­sa­tion pe­riod for the shares nears.

“The risks will re­main over the near term as both the United States and Iran aim threats at one an­other,” said Jameel Ah­mad, a mar­kets an­a­lyst at FXTM in Lon­don. The drop in Aramco shares ‘is a nat­u­ral re­ac­tion to the co­or­di­nated risk aver­sion that has swept global sen­ti­ment since the events at the end of last week’.

The mis­sile at­tack that killed Iran’s Gen­eral Qassem Soleimani in Iraq, or­dered by US Pres­i­dent Don­ald Trump, was a re­minder of the risks of in­vest­ing in the re­gion. In Septem­ber, Saudi oil pro­duc­tion was cut by half af­ter a swarm of ex­plo­sive drones struck some of its most im­por­tant pro­duc­tion fa­cil­i­ties. The US and Saudi Ara­bia blamed Iran for the at­tack, while Ye­men’s Houthi rebels claimed re­spon­si­bil­ity.

Aramco was back pump­ing 9.9mn bar­rels a day just one month af­ter the at­tacks and the com­pany pressed ahead with what was to be the world’s big­gest IPO.

At the time of the sale, many for­eign in­vestors cited geopo­lit­i­cal risk as rea­sons to stay away from the shares, and con­sid­ered them too ex­pen­sive. Even af­ter this week’s fall, Aramco has a val­u­a­tion of US$1.8tn, eas­ily the high­est among listed com­pa­nies.

Aramco still has some built-in pro­tec­tion be­cause the shares are mostly in the hands of those used to re­gional pol­i­tics, mit­i­gat­ing sell­ing pres­sure at times of ten­sion. Saudi gov­ern­ment in­sti­tu­tions in­vested al­most US$2.3bn in the IPO. The gov­ern­ment also re­lied heav­ily on or­di­nary Saudis and funds from neigh­bour­ing Gulf Arab monar­chies to en­sure the suc­cess of the of­fer­ing.

On top of that, Goldman Sachs Group Inc is act­ing as share-sta­bil­is­ing man­ager for the of­fer­ing un­til the end of this week and can buy shares as part of that. It also has the right to ex­er­cise a so-called green­shoe op­tion of 450mn shares, which would nor­mally be used if the stock was rising too fast. No price-sta­bil­i­sa­tion trans­ac­tions had been ex­e­cuted as of De­cem­ber 31, as per a state­ment from Aramco.


A file photo of stor­age tanks at an oil pro­cess­ing fa­cil­ity in Saudi Aramco’s Shay­bah oil­field in Shay­bah, Saudi Ara­bia

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