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Sun 8 Dec 2019 03:27 PM

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Saudi Aramco's $2trn valuation imminent, say experts

Saudi officials and industry experts believe that Saudi Aramco will pass the $2 trillion mark within months or even days of the start of its shares trading on December 11

Saudi Aramco's $2trn valuation imminent, say experts

In a circular sent to media, Dalma Capital said that it expects Aramco to be fast-tracked onto the MSCI, FTSE and S&P emerging market indices within two weeks of its listing, which will lead to incremental buying of $3.4 billion.


Saudi Aramco is likely to surge past the $2 trillion valuation mark shortly after it begins trading this week following an initial valuation of approximately $1.7 trillion in its IPO, according to Saudi officials and industry experts.

On Friday, Saudi energy minister Prince Abdulaziz bin Salman – the half-brother of Crown Prince Mohammed bin Salman – said that while the kingdom lowered the valuation it was seeking, it is likely to rise after shares begin trading on December 11.

“Aramco will be higher than the $2 trillion, and they can bet this will happen,” Prince Abdulaziz was quoted as saying by Bloomberg, adding that he believes the company will hit that valuation in “a few months”.

The minister’s comments were echoed in a circular by Dubai-based Dalma Capital, which is participating in the Aramco IPO through three funds it manages.

In a circular sent to media, Dalma Capital said that it expects Aramco to be fast-tracked onto the MSCI, FTSE and S&P emerging market indices within two weeks of its listing, which will lead to incremental buying of $3.4 billion.

“In light of these dynamics, we believe that it is likely that we will see Aramco bid up to $2 trillion or higher in the first days of trading, and potentially to trade limit up on the first day,” Dalma said.

Institutional Investors

In total, Aramco received $119 billion in orders for the $25.6 billion offering, a 465 percent oversubscription.

Institutional oversubscription was even more pronounced, with orders of $106 billion for an institutional offering size of $17 billion – constituting a 623 percent oversubscription for the institutional tranche.

“Many institutional investors will find that they are significantly under their target weight of Aramco, and will need to buy shares in the first days of trading to weight Aramco appropriately in their portfolios,” the Dalma note said.

The note added that retail investors are thus disincentivised to sell, or risk forfeiting the 10 percent bonus shares that are to be awarded for holding shares for 180 uninterrupted days.

Additionally, the note added that it is “highly likely” that the 15 percent ‘greenshoe option’ – a provision that grants the right to sell investors more shares than initially planned when demand is higher than anticipated – which, in turn, will up the deal size to $29.4 billion.

“Even if the greenshoe is exercised, the oversubscription still amounts to 404 percent and the additional shares will not be sufficient to meet demand,” it added.

Strong capital markets

According to Dalma Capital, the oversubscription “demonstrates the depth of Saudi’s own capital markets” and demonstrates that its own citizens and regional investors were prioritised during the Aramco IPO.

“Many actively managed emerging markets funds have underweighted Saudi Arabia and declined to participate in the Aramco IPO,” the note added. “We believe that it will be costly for emerging markets and global investors to continue to ignore and significantly underweight Saudi Arabia.”

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