Saudi Arabia is making a last-ditch attempt to persuade its institutions and wealthiest families to buy shares in Saudi Aramco after it floats on Wednesday as Crown Prince Mohammed bin Salman refuses to give up on his long-coveted $2tn valuation.
As part of a plan to drive up the Saudi oil company’s stock price, state investment funds are being encouraged to buy Saudi Aramco shares following the start of trading in Riyadh, two people briefed on the matter said.
“All the focus now is how to reach $2tn,” one of the people said. “They’ve been told to keep some powder dry for buying in the secondary market,” said another.
Saudi Aramco, which is responsible for more than 10 per cent of the world’s oil supply, raised $25.6bn from investors last week in a record-breaking initial public offering that gave the company a valuation of $1.7tn.
However, that valuation fell short of the ambitious $2tn target that Prince Mohammed set out with when the government first disclosed its intention to float the company almost four years ago.
The Public Pension Agency, the Public Investment Fund and the PIF’s Sanabil Investments unit are among the state-backed institutions that may be relied on to support shares in Saudi Aramco once they are trading.
Many wealthy families, some of whom were caught up in a 2017 anti-corruption crackdown masterminded by Prince Mohammed that resulted in hundreds of businessmen and princes being detained at the Ritz-Carlton hotel in Riyadh, have already bought shares. Some are now being asked to pledge further funds, advisers to the families said.
“They’ve been told it is their duty, and everyone understands what that means,” said one adviser to local wealthy families.
“This is another Ritz, through different means,” said another banker working on the deal.
A successful IPO of Saudi Aramco, which generated $111bn in net income last year, underpins Prince Mohammed’s radical plan to redraw an economy that remains reliant on oil revenues. Ambitions to list the company in one of the world’s financial capitals, such as London or New York, have withered and the size of the domestic flotation scaled back.
Prince Abdulaziz bin Salman, the kingdom’s energy minister and Prince Mohammed’s half brother, criticised the IPO’s sceptics last week. They could, he added, “bet” that the shares would rise to a level that values Saudi Aramco at more than $2tn.
One of the people said: “With enough arm-twisting, the government should be able to reach that level.”
Saudi state-owned funds have often intervened in the country’s stock market, people familiar with the matter say. The funds bought shares when foreign investors sold following the killing of journalist Jamal Khashoggi in October 2018.
The PIF, which is headed by Saudi Aramco chairman Yasir al-Rumayyan, denied that it would intervene to support the price after the IPO.
“Our investments in stocks are indirect investments that are conducted through independent money-management firms . . . [that] are self-directed,” said the PIF.
Saudi Aramco declined to comment. The PPA did not respond to a request for comment.
Faced with tepid demand from international institutions even after announcing plans for a bumper dividend, Saudi banks have issued loans to local retail investors to buy shares.
Regional investors, including state-backed funds from Abu Dhabi and Kuwait, have invested in the IPO. Abu Dhabi, a close ally of Saudi Arabia, has lifted its investment from $1.5bn to as much as $5bn, two people briefed on the deal said.
The direction of the oil price could also prove pivotal to Saudi Aramco’s fortunes in the next few days, analysts and investors say.
Although a $2tn valuation would be “unsustainable” in the long term, according to one asset manager, it could be achieved in the short term “especially if oil goes up”.
Convinced that the shares will rise, several western hedge funds applied for and received large allocations, two people familiar with the matter said. Some intend to sell once the company nears a $2tn valuation, they added.
The majority of state institutional investors are expected to hold the stock long term, seeking to benefit from the dividend.
The inclusion of the Saudi stock exchange in MSCI’s flagship emerging market index is also expected to provide long-term support for Saudi Aramco shares.