Saudi Aramco triggers greenshoe purchasing option

In its debut on the Saudi domestic exchange, Saudi Aramco’s shares performed exceptionally well, with the share price quickly rising 10% above the IPO price.
Sunday 19/01/2020
$2 trillion valuation. Saudi officials watch the stock market screen displaying Saudi state-owned oil company Aramco, in Riyadh. (AP)
$2 trillion valuation. Saudi officials watch the stock market screen displaying Saudi state-owned oil company Aramco, in Riyadh. (AP)

Saudi Aramco has bested its own world record, set in December, in initial public offering earnings, providing additional shares to investors to boost the Saudi state oil and gas giant’s profits from its limited public sale by $3.8 billion.

As impressive as the newly achieved initial public offering (IPO) earnings record of $29.4 billion is, Saudi Aramco shares trading on the domestic stock exchange are experiencing price volatility in response to geopolitical tensions, a factor the Saudi oil firm cautioned investors about ahead of its IPO.

Saudi Aramco reported to the Saudi domestic exchange, the Tadawul, on January 12 that it had triggered its “greenshoe” purchasing option, with its stabilising manager Goldman Sachs selling an additional 450 million shares to investors.

The IPO’s greenshoe, or overallotment option, enabled Saudi Aramco to sell up to 15% of additional shares within the first 30 days of trading based on investor demand and because the share price had remained above the IPO price of 32 riyals ($8.53).

Selling 1.5% of the company on December 5, Saudi Aramco netted $25.6 billion, securing the title of the world’s largest IPO by surpassing the $25 billion IPO recorded by Chinese e-commerce firm Alibaba in 2014. In exercising its greenshoe option, Saudi Aramco has sold 3.45 billion shares, bumping the company’s public stake to 1.725% and raising its IPO earnings to $29.4 billion.

Saudi Aramco said: “The 450 million shares subject to the overallotment option had been allocated to investors during the book-building process and, therefore, no additional shares are being offered into the market today.”

Since debuting on the Tadawul on December 11, Saudi Aramco shares have remained firmly above the IPO price but it has been a rocky month for the Saudi energy conglomerate, with heightened tensions between Iran and the Trump administration prompting the share price to take a sharp hit and the company’s valuation to tumble.

In its IPO prospectus released in November, Saudi Aramco pulled no punches in warning about geopolitical factors potentially affecting the company’s operations and share price.

Under the prospectus’s risk factors section, Saudi Aramco stated: “Political and social instability and unrest and actual or potential armed conflicts in the MENA (Middle East and North Africa) region and other areas may affect the company’s results of operations and financial position.” The state firm emphasised that: “Terrorism and armed conflict may materially and adversely affect the company and the market price of the shares.”

The prospectus highlighted the September 14 drone and missile attacks believed to have been carried out by Iran on Aramco’s Abqaiq processing plant and the nearby Khurais field that temporarily halved the kingdom’s oil production as well as drone attacks on the East-West pipeline and Shaybah field in May and August, respectively.

In its debut on the Saudi domestic exchange, Saudi Aramco’s shares performed exceptionally well, with the share price quickly rising 10% above the IPO price and hitting the daily limit, closing at $9.38. That first day of trading pushed the company’s valuation up to $1.88 trillion from $1.7 trillion.

Saudi Aramco flirted with a $2 trillion valuation on December 12 when the share price hit $10.32 before closing at $9.81, giving the company a market valuation of $1.96 trillion.

The company’s shares subsequently peaked December 16, closing at $10.13 but trended lower in the following weeks in what was deemed a market correction of an overvalued stock.

The US assassination of Iran’s Islamic Revolutionary Guard Corps Major-General Qassem Soleimani on January 3 led to Saudi Aramco share prices sliding 1.7% on January 5, the first day of trading after the killing, to $9.21 a share. That was the lowest share price recorded since the December 11 listing.

Following the Iranian government’s January 8 ballistic missile attacks on Al Asad Airbase and a facility in Erbil, both in Iraq, the share price surprisingly closed up 2.3% at $9.33 the following day.

That increase may well have been the exchange’s relief that Saudi Aramco was not a target of Iran’s military action and that Tehran was not likely to take any further short-term retaliatory steps that would impact the state oil firm.

The share price has since trended below $9.33. Saudi Aramco’s valuation is approximately $1.87 trillion.

Though Riyadh has sought to defuse tensions with Iran, the kingdom and Saudi Aramco could be targets for future aggression from Tehran.

In addition to Saudi energy security vulnerability reflected in attacks on Saudi oil infrastructure in recent years, Iran is believed to have been behind the malware attack on Saudi Aramco headquarters in August 2012 that forced the company to replace 30,000 computers.

Asked January 13 whether the Saudi government had done all it could to guarantee the safety of its oil operations after the strikes in Iraq, Saudi Oil Minister Prince Abdulaziz bin Salman bin Abdulaziz said: “We have taken every precaution that can be taken.”

20