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What to expect when Saudi Aramco shares launch on December 11

Experts say the oil firm’s share price is ‘likely’ to rise in the immediate, with its long-term performance dependent on wider factors like oil prices.

Saudi Aramco will begin trading shares on Wednesday December 11, the Saudi Stock Exchange said in a statement.

The Tadawul bourse also advised that traders can expect a 10% daily price fluctuation limit. It added that opening auction on the first day will start from 9.30am until 10.30am local time, with an extension of 30 minutes.

Continuous trading will start at 10.30am local time and closing auction at 3pm.

Last week, the state-owned oil and gas firm announced that three billion shares priced at 32 riyals (US$8.53) each would be put up for sale, instantly raising US$25.6 billion in the world’s largest initial public offering (IPO).

Share price ‘likely’ to trade up on opening day

There is also an over-allotment option allowing for an additional 450 million shares to be sold, in order to cater to a portion of the oversubscription.

According to Dubai-based fund manager Dalma Capital, it is ‘highly likely’ that Saudi Aramco’s stabilising agent Goldman Sachs will exercise the over-allotment option, given that equity interest currently stands at 4.6 times the number of shares available.

Dalma Capital also predicted that with demand higher than supply, share price is likely to rise above the opening mark once the market launches on Wednesday.

"In light of these dynamics, we believe that it is likely that we will see Aramco bid up to US$2 trillion or higher in the first days of trading.

‘This would validate our thesis that Aramco's pricing fell short of US$2 trillion to leave upside on the table for Saudi and GCC investors, allowing them to benefit from the listing of Saudi's crown jewel,’ Dalma Capital's media note said.

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Note to investors: Prospects in the long run

Saudi Arabia Crown Prince Mohammed bin Salman had initially planned for a 5% sale of the company at US$10 a share on a US$2 trillion valuation.

Market research soon showed investors – institutional and retail alike – were not biting the bait, so a new pricing approach to lower the quantity of shares was taken.

As Bloomberg Businessweek Economics Editor Peter Coy wrote: ‘Saudi Aramco wanted to sell a lot of shares at a high price, but the smart money showed no interest. So the company’s bosses had a tough choice to make. They could cut the price, or they could reduce the size of the sale. They opted mostly for the latter.’

It remains to be seen how share price will move in the long run, but as Coy further noted, ‘shrinking the offering may have allowed Saudi Aramco to get a higher price per share, but it comes with downsides. It raises less money.’

He also added that ‘the moment of truth may come when there is a big drop in the oil price’. Share price of Saudi Aramco, being the world’s second largest oil producer, face the possibility of being affected by oil supply.

In July, OPEC and Russia, along with other non-OPEC members, agreed to reduce global oil production by 2.1 million barrels per day until March 2020, as a countermeasure for falling oil prices.

On Friday December 5, Saudi Arabian Energy Minister Prince Adbulaziz bin Salman said during a media session after an OPEC meeting in Vienna, that Aramco's market capitalisation 'will be higher than US$2 trillion soon, and all can bet on that to happen'.

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This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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