Saudi Aramco's shares surge on market debut; becomes the most valued company, as country takes a big leap towards economic overhaul

Saudi Aramco officially became the most valued public company in the world, as shares surged the maximum permitted 10% on its Riyadh stock market debut on Wednesday. The company's market valuation reached a whopping $1.88 trillion in early trading, following the oil giant's record $25.6 billion initial public offering (IPO).

Although the listings fell short of the country's crown prince Mohammed bin Salman's initial expectations of a larger flotation of $2 trillion, it is a big move by the state-owned oil giant. It has been Mohammad bin Salman's long dream to overhaul Saudi Arabia's oil-driven economy and reshape the country.

Shares in Saudi Aramco reached 35.20 riyals ($9.39) in initial trading. The company's partial privatization also marks a new era of economic liberalization in the country.

Aramco way ahead in the race

Saudi Aramco
Saudi Aramco YouTube Grab

The company's shares surged 10% within seconds after it started trading on the bourse. At that level the company could easily cross a market capitalization of $2 trillion, which the company had initially expected but missed in its IPO.

However, that doesn't make much of a difference to the company's net market capitalization for now. Saudi Aramco is clearly way ahead of some of the biggest companies in the world that includes tech giants like Apple, Amazon, Google parent Alphabet and Microsoft.

Apple, which was so long the most valued public company in the world, lags behind a long way with a market capitalization of $1.2 trillion, while Microsoft, Alphabet and Amazon are valued at $1.15 trillion, $930 billion and $870 billion, respectively. Moreover, the valuation also means Aramco now is worth more than the next five largest oil companies — ExxonMobil, Total, Royal Dutch Shell, Chevron and BP, combined.

How the company looks now

Saudi Aramco
Saudi Aramco YouTube Grab

The company at its IPO in the Riyadh stock exchange pulled off a record $25.6 billion, beating the $25 billion raised by Alibaba when it went public in September 2014. Aramco also crossed its earlier valuation of $1.7 trillion, which was announced when the share pricing was disclosed last week.

However, investors were able to buy only 1.5% of the company. The surge in share price came alongside reports that the Saudi government also pushed domestic investors to pump in money in the company.

Almost 80% of the 1.5% stake sale, reportedly, was by Saudi Arabian investors. Samba Capital, which is one of Aramco's advisors, last week said that 10.5% of the offers came from foreign investors.

The three-year long wait

Saudi's Crown Prince Mohammed bin Salem had initially shared his ambitious dreams in 2016, stunning analysts with the idea of raising $2 trillion in market valuation.

Later, in 2018, the Saudi government decided to float 5% of the company in a deal that would raise around $100 billion. Aramco, which considered the jewel in the country's crown, had initially looking at listing the company at bigger international markets like New York and London including Riyadh.

However, the plans took a backseat amid concerns about legal complications in the U.S, doubts over raising $2 trillion and the international outrage following the murder of journalist Jamal Khashoggi in a Saudi consulate in Turkey.

The figure this year was brought down by banks and financial advisors to $1.5 to $1.7 trillion before the company finally going for an IPO.

Saudi Arabia on board a new journey

How Mohammed bin Salman is revolutionizing Saudi Arabia

It has been the Crown Prince's long dream to overhaul Saudi Arabia's oil-driven economy and reshape the country. Making the company partly private will now allow the Saudi government to channelize funds raised from the IPO in making other infrastructural development and local economy.

The amount raised from the 1.5 percent stake sale will now be diverted to the Public Investment Fund (PIF), which is the sovereign wealth fund. The fund will be used in achieve Salman's ambitious plans of economic transformation.

According to the country's Finance Minister Mohammed al-Jadaan, a large part of the fund will be used in local projects. "The proceeds will be used largely, maybe not totally, in the local economy, in projects where the PIF will be the first mover which then basically pulls more private sector participation ... so the money will remain in the system mostly," al-Jadaan told Reuters.

He further said that it would take time to understand the real impact of the Aramco share sale on Saudi's fiscal standing. That said, the IPO definitely is a great victory for both Saudi Arabia and its crown prince given the country's long dreams of coming out of being known as a oil-driven economy.