Monday, January 6, 2020

Saudi Aramco has seen $200 billion of market value erased since its record-shattering IPO as Mideast tensions drag it lower

FILE PHOTO: A sign of Saudi Aramco's initial public offering (IPO) is seen during a news conference by the state oil company at the Plaza Conference Center in Dhahran, Saudi Arabia November 3, 2019. REUTERS/Hamad I Mohammed/File Photo

Saudi Aramco's market value has tanked by $200 billion since its post-IPO peak, and the stock is falling faster in the wake of heightened tensions between the US and Iran.

The world's most highly valued company fell 1.7% Sunday and as much as 1.2% Monday. Aramco became the first company to hit a $2 trillion valuation on December 12, but its market cap now sits at roughly $1.8 trillion.

Aramco shares have since pared some losses through Monday, trading roughly 0.1% lower at 34.50 riyals ($9.20) per share. The two-day drop placed shares at their lowest point since the firm's December 11 initial public offering, and just 7% higher than its offering price of 32 riyals ($8.53). 

Global stocks continue to fall as the US's assassination of Iranian Major General Qassem Soleimani late Thursday inflamed tensions between the two nations. Gold, a traditional safe-haven asset, on Monday hit its highest price since 2013.

Aramco stock fell despite oil surging to $70 per barrel, suggesting higher oil prices were overshadowed by boosted risk in the Gulf region.

Some analysts have said Iran could target oil infrastructure and raise the commodity's cost to hit back at the US. Any such retaliation could resemble the attacks on Aramco facilities in September. The firm's oil production was cut in half after explosive-armed drones disabled several of its facilities. The US and Saudi Arabia blamed Iran for the strike, while Houthi rebels from Yemen claimed responsibility.

Aramco returned to its normal output levels in just one month and pushed forward with its IPO, but the attacks left many investors mulling the company's exposure to geopolitical risk.

Though the US airstrike pushed Aramco lower, the state-run company has several defenses to keep its shares from falling too far. Saudi Arabia government institutions sank $2.3 billion into the company's stock ahead of its record-breaking IPO, giving the kingdom a stronger hold on Aramco's stock price. 

Saudi Arabia has also marketed Aramco shares as a stable investment in the kingdom's future. The oil giant and its December IPO are key components in the government's plan to diversify away from oil. The kingdom could intervene to keep the stock price stable, Asha Mehta, Acadian Asset Management senior portfolio manager, told Bloomberg in December.

"There's broad awareness that the government is a large investor and that they're willing to step in during times of market volatility to protect prices," Mehta said.

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