Saudi Aramco shares shed post-IPO gains as oil dives

RIYADH: Saudi Aramco shares have lost most of the gains they made since listing in December in a landmark first offering, as oil prices drop amid alarm over the new coronavirus.

China’s energy demand has sagged as authorities lock down millions of people to prevent the spread of the disease, with major knock-on effects for a global economy dependent on the Asian powerhouse.

The slump, which has slashed main oil contracts by up to 20% since the virus panic began, threatens to undercut Gulf economies that have already been battling both low prices and low demand for energy exports.

A high-profile casualty is Saudi Aramco – the world’s largest company – which was listed on the Saudi bourse to much fanfare on Dec 11 in a record-breaking initial public offering (IPO).

The company raised US$25.6 billion with the sale of 1.5% of its stock, with one-third of the shares sold to some five million Saudi citizens who were promised a 10% bonus if they did not sell for six months.

The value of the IPO was further raised to US$29.4 billion in early January when the company sold some 450 million extra shares to investors.

The stock surged almost 19% in the heady first few days of trading, sending the company’s valuation past the US$2 trillion mark sought by de facto ruler Saudi Crown Prince Mohammed bin Salman when he envisaged the IPO four years before.

But over the past weeks, the share price posted gradual but persistent declines, coming close to the IPO price of 32 riyals a share.

On Sunday, it closed at 32.80 riyals, the lowest price since the listing, which reduced the firm’s value to US$1.75 trillion.

April test

Global ratings agency Standard & Poor’s said on Monday that the coronavirus may further push down oil prices, especially if the disease which has killed more than 1,800 people is not contained by March, as many hope.

“For the (Gulf nations), this could result in a drop in oil prices, economic growth, and real estate prices, alongside a change in government spending, which could put pressure on issuers we rate in the region,” the agency said in a report.

China is the top importer of Saudi oil.

Aramco has dropped some 13.4% since hitting its record high of 38 riyals on Dec 16, and lost about 7% since the start of the year, most of it after the coronavirus outbreak.

“Part of the initial decline came after the price soared to levels that made the share unattractive to investors and after dealers sold to make a quick profit,” said Mohamed Zidan, market strategist at ThinkMarkets in Dubai.

The company faces a key test in early April when Saudi shareholders will be able to sell after collecting their 10% bonus share issue.

Aramco has guaranteed it will distribute dividends of at least US$75 billion every year until 2024 as a way of luring investors.

But the drop in the share price comes as the company prepares to announce its 2019 earnings on March 16.

In 2018, it posted a net profit of US$111 billion, making it the most profitable firm in the world.

However, its nine-month profit for 2019 dropped 17.9%, mainly due to lower oil prices.