Saudi Aramco’s shares jumped 10 per cent for a second consecutive day on Thursday, taking the state-owned oil producer past the $2 trillion price tag long coveted by Crown Prince Mohammad bin Salman.
The sharp rise means Aramco has gained $300bn in value since launching on Saudi Arabia’s Tadawul stock market on Wednesday. Ten per cent is the maximum daily rise allowed for a stock listed on the exchange.
Riyadh has sought to boost Aramco’s share price by asking wealthy Saudi families to buy shares after international investors balked at the valuation.
Analysts have warned that Aramco is overvalued, raising concerns about governance at the firm, which is tightly controlled by Saudi royals. Geopolitical and security risks have also weighed on investors minds after Aramco’s oil facilities were recently the targeted by a drone attack that temporarily wiped out half of the company’s production.
“Saudi Aramco is the largest, most profitable oil company in the world – but size is not everything,” wrote analysts at Bernstein on Thursday.
“Aramco should trade at a discount rather than premium to international oil majors.” Berstein puts the company’s worth at as little as $1.4 trillion, when compared to other oil companies like Exxon.
They added: “Aramco could trade in a league of its own for some time, but the stock market is a weighing machine in the long term and the laws of economic gravity will eventually apply.”
The key risk is that 98 per cent of the company is owned by the Saudi government, Bernstein said. Environmental concerns are also an issue for many institutional investors which set criteria for the CO2 emissions associated with their assets; criteria that are likely to get more stringent as the world confronts the climate crisis.
Funds raised by Aramco’s IPO have flowed into Saudi Arabia’s Public Investment Fund, the vehicle Mohammad bin Salman wants to use to modernise the economy, diversifying it away from oil. The crown prince initially hoped to raise $100bn from the share sale but eventually brought in just $25.6bn.