Trouble in paradise? Aramco shares drop below IPO price

Written by: Damian Wood
March 11, 2020
  • Saudi Aramco's share price has for the first time, dropped below its IPO price since listing.
  • Since the start of the year, the firm's shares have dipped more than 11% amid fears of the Coronavirus outbreak.
  • Despite the troubled times, Aramco plans to issue a dividend of about £57 billion.

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.

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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.