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Thu 12 Dec 2019 11:43 AM

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Saudi Aramco reaches $2 trillion valuation after second-day surge

Saudi Aramco IPO is a watershed moment for a business that's bankrolled Saudi Arabia and its rulers for decades

Saudi Aramco reaches $2 trillion valuation after second-day surge

Aramco raised $25.6 billion in the biggest-ever initial public offering, selling shares at 32 riyals each and overtaking Microsoft and Apple as the most valuable listed company.

Saudi Aramco jumped for a second day, pushing the oil giant’s value beyond the $2 trillion mark that alienated global investors and prompted the kingdom to end up focusing on a domestic listing.

The stock climbed by the daily 10% limit to 38.7 riyals at the open in Riyadh before trimming gains. It rose 9.4% to 38.50 riyals at 11:30 a.m. local time in trading of 313 million shares, compared with 31.6 million for all of Wednesday.

Aramco raised $25.6 billion in the biggest-ever initial public offering, selling shares at 32 riyals each and overtaking Microsoft and Apple as the most valuable listed company.

The IPO has become synonymous with Saudi Arabia’s controversial Crown Prince Mohammed bin Salman and his efforts to reshape the economy of the world’s biggest oil exporter. But his insistence on the $2 trillion valuation pushed him to lean on local investors and regional allies.

While hitting the target would vindicate Saudi officials, it’ll complicate any plans to sell part of Aramco’s shares abroad as originally envisaged by Prince Mohammed in 2016, when he said a dual listing could raise as much as $100 billion.

Time to cash out

Analysts at Sanford C. Bernstein & Co. said after the first trading day it’s already time to cash out. In a Bloomberg survey last month, global money managers put Aramco’s fair value at between $1.2 trillion and $1.5 trillion.

Still, the IPO is a watershed moment for a business that’s bankrolled Saudi Arabia and its rulers for decades. First floated by Crown Prince Mohammed bin Salman in 2016 with an ambition to raise as much as $100 billion, the share sale was touted as part of a blueprint for life after oil.

The debut was cheered by Saudi and Gulf investors, who see the stock price supported by Aramco’s guaranteed dividends, buying by index-tracking funds and the fact that the region doesn’t have any other listed major oil companies.

Aramco’s “$2 trillion valuation is justified due to secured dividend streams,” Arqaam Capital analysts including Rita Guindy and Jaap Meijer wrote in a report on Wednesday in which they initiated coverage with a buy recommendation and price target of 39.20 riyals.

Arqaam expects a gradual increase of 2% annually in the dividend, potentially being topped up by a special payout of $20 billion in the next three years.

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