Trouble in paradise? Aramco shares drop below IPO price

For the very first, the share price of oil giant Saudi
Aramco Oil Compay (Tadawul:
2222) has slumped below the initial public offering (IPO) price since its December
mega listing. The drop that occurred on Sunday caused a 7.4% slash of the
company’s value, even as OPEC’s
pact with Russia to cut supplies crumbled on Friday.

Aramco’s IPO was one of the most controversial,
marred with alleged overvaluation by the Saudi Crown Prince Abdulaziz bin
Salman Al Saud. But despite that, the state oil company settled on a valuation
of £1.3 trillion, earning a record of the planet’s highest valued company. By the
end of its second trading day, investors had pocketed about £7.89 profit for
each share held, but the wave seems to be changing.

Since the beginning of the year, Aramco’s shares have dipped
more than 11% amid Coronavirus concerns, effectively disrupting oil demand from
China, the commodity’s largest market.

But oil prices have been dropping globally, with the latest dip
recorded on Friday following a fallout between OPEC and Russia after Moscow
refused to support further production cuts.

In what has been seen as OPEC’s way of retaliating, the oil producer’s
fraternity withdrew all limits regarding its production.

Difficult times

Speaking on the matter, the head of institutions at Daman
Securities Marie Salem, said: “Aramco is under pressure because of
the failure of the deal.”

Other oil markets were also affected; Dubai’s index was down
7.4% while the Abu Dhabi one dropped 5.8%.

“We expect to see Saudi Arabia, the UAE and other
large producers in OPEC increase production over the rest of 2020 as they
return to a market-share strategy rather than price targeting,” Edward
Bell, commodity analyst at Emirates NBD said in a note seen
by Aljazeera.

Being the world’s largest oil exporter, Aramco is the de
facto head of the OPEC. In recent times, the firm has undergone a series of challenges
ranging from austerity measures to aid in reducing Saudi Arabia’s budget
deficit to low global oil prices.

However, according to Jaap Meijer, head of equity research at Arqaam
Capital, Aramco investors should sleep easy as they are protected by the
guaranteed dividend stream, following the government’s decision to scale back
its profits to shelter the minority shareholders.

The company has this year planned a dividend payout amounting
to £57 billion, higher than most S&P 500 companies.