Saudi Aramco Unaffected by ME Oil Issue, Records IPO of US$29.4 Billion
Oil & Gas

Saudi Aramco Unaffected by ME Oil Issue, Records IPO of US$29.4 Billion 

Last updated on September 19th, 2020

Escalating tensions due to the US-Iran conflict have forced global energy markets to underestimate the risks to Gulf oil supplies. Meanwhile, state-owned oil company, Saudi Aramco claims to have exercised its “greenshoe option” for selling extra 450 million shares by raising the size of its initial public offering to a record US$29.4 billion.

Prior to this, Saudi Aramco raised a US$25.6 billion in December IPO by making sale of 3 billion shares at 32 riyals (US$8.53) a share. As per data from Refinitiv, shares of the firm were flat at 35 riyals shortly after the market opened.

The overall allotment or greenshoe option, helps companies to issue a greater number of shares when there is a hike in demand from participants in the initial offer. Aramco announced that the investors were allocated additional shares during book-building.

The Dhahran-based company added, “No additional shares are being offered into the market today and the stabilizing manager will not hold any shares in the company as a result of exercise of the over-allotment option.”

Previously, the firms’ shares had been volatile, dropping to 34 riyals on Jan 8, which is its lowest since trading began on Dec 11. Shares closed at 35 riyals on Jan 9. The closing price valued the firm at US$1.87 trillion, much more than the IPO price. But much less than the IPO target set by Crown Prince Mohammed bin Salman.

The previously intended stock market floatation of Saudi Aramco aimed to raise $100 bn via sale of five percent on an international stock exchange. But a laid back response from foreign institutions forced the firm to cancel plans to market the offering globally, limiting it to the Gulf, scaled at the size of an offer at 1.5 percent.

Post the speculations of a drop after the Middle Eastern tensions, almost a fifth of the global oil consumption and a quarter of the international trade in LNG passed via the strait in 2018. Despite the tensions and strained oil supplies, most countries are on a look out to keep the Strait as an export route. Analysts are judging the current situation based on war times like the “Tanker War” of 1980s, claim that the oil supply has remained manageable.

Besides the suspended crossings by national shipping company of Saudi Arabia, several other oil groups and tanker operators have been restricting movements.

As the US-Iran conflict is easing, oil prices have shown significant plunge. The tensions have been somewhat eased by the much awaited signing of US-China trade deal, scheduled for January 15. Brent crude plunged 13 cents, or was at 0.2 percent at $64.85 per barrel at 0120 GMT. The West Texas Intermediate was low at 9 cents, or 0.2 percent at 58.95 a barrel. As per a note by ANZ Research, “Geopolitical tension will be the focus for investors this week.”

Currently, Saudi Aramco stands for 9.9 percent of the Tadawul All Share index, representing the second-biggest weighting after Al Rajhi Bank.

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