DUBAI/RIYADH • Saudi Aramco topped the US$2 trillion (S$2.7 trillion) target sought by Saudi Crown Prince Mohammed bin Salman as its shares rose for a second day yesterday, defying some scepticism about the state-owned oil firm's long-term value.
The prince has made Aramco's initial public offering (IPO) the centrepiece of his vision to diversify the kingdom's economy away from its dependence on oil by using the US$25.6 billion raised to develop other sectors. But that is well below his plan in 2016 to raise up to US$100 billion via a blockbuster global and domestic IPO.
But overseas investors baulked at the proposed valuation and only 1.5 per cent of Aramco shares were listed on the Riyadh stock exchange on Wednesday, a tiny free float for such a large company.
While a 10 per cent jump in the stock on its Wednesday market debut was hailed by the Saudi government as a vindication of its long-sought valuation, support was largely from loyal Saudi and Gulf investors, with some analysts saying it is worth less.
The listing made the front pages of most Saudi mainstream media yesterday, with headlines such as "Aramco at the top of the world" and "A dream come true".
But Bernstein analysts have put Aramco's value at around US$1.36 trillion, which compares with United States energy giant Exxon Mobil's market capitalisation of less than US$300 billion. "Saudi Aramco is the largest, most profitable oil company in the world - but size is not everything," they wrote, flagging the risk of slow net income growth if oil prices stay flat.
An International Energy Agency report yesterday noted pressure on oil prices, predicting a sharp rise in global inventories despite an agreement by Opec and its allies to deepen output cuts as well as lower expected production by the US and other non-Opec countries.
Bernstein said Aramco should trade at a discount rather than a premium to international oil majors, with corporate governance "the key risk" as the Saudi government owns more than 98 per cent of it.
"For actively managed funds, one of the key considerations - aside from valuation - will be the ESG (environmental, social and corporate governance) criteria," said Mr Tim Love, investment director for emerging markets equities at GAM.
"The main concerns here are lagging corporate governance standards as well as environmental issues since an investment in Aramco would obviously have a significant impact on a portfolio's CO2 emissions," he added.
REUTERS
