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Can Saudi Aramco $2 Trillion Market Cap Be the Game Changer?

After so many delays and continuous questions being asked about the listing of Saudi Arabia’s oil-giant Aramco, the kingdom finally traded shares on Wednesday. The realm listed 1.5 per cent of the company’s total share, which witnessed a 10 per cent rise above the initial public offering price as the trading began, taking the evaluation of the oil-giant to $1.88 trillion. On Thursday, the value rose again, taking Aramco’s value to $2 trillion market cap, but fell back within minutes of touching the much craved evaluation.

On Wednesday, Saudi Arabia relied upon domestic and regional investors to sell the 1.5% stake after receiving lukewarm interest from abroad. It initially sought to raise $100bn on two exchanges – with listings on the Saudi Stock Exchange, or Tadawul and an overseas market.

In what has been a long ride for Aramco, since plans to privatize were first made public, Crown Prince Mohammed bin Salman (MbS) still adverted the value he promised in just two days. In the process, he showcased an end to the economy’s sole reliance on oil and offered a look into how his modernization plans have come true.

But for financers, the reality remains dazed. The concept of true realization of value states Saudi earning big capital investments from abroad and not from regional investors.

The story of listing is a clear combination of contrasting schemes that are presented at front and actually implemented behind the back. Just like any other argument, it is seen as both an opportunity to expand the horizon, and a wrong use of leadership.

Also, for 1.5 percent that has been listed, the parameters to judge appropriately remain acute, even when everything trades at front. In a nation where conservative norms have held grip for so long, even after 5 per cent is traded, the 95 per cent of the control will still be in the hands of the Saudi government.

It is a very different scenario from what was at the beginning of the process. To showcase prosperous aspects of the economy, Prince Mohammed stalled plans to privatize on numerous occasions.

At first, the kingdom tipped off the idea fearing the revelation of Aramco’s value, followed by $69 billion acquisition in SABIC – a state owned petrochemical company. In the months after, it issued bonds to raise $12 billion, and gained more than $100 billion in demand. The moves that had a direct impact on pushing Aramco’s value upward, but with a majority of the amount coming from in the form of debt.

Even crucially, the flood of foreign direct investment that Prince Mohammed promised, has yet to come true. The economy has to grow further, even when it picked up to $3.2 billion last year, according to the UN data, because the amount is still less than half the FDI secured in 2016.

Moreover, the plans to go global fear backlash following Aramco’s carbon emissions and the world’s rising awareness towards climate change, which could further complicate the situation. It would stock polarization as Saudi would still hold majority of shares to Aramco, pose political risk following human rights concerns and cause a shift in trend that the analysts fear would raise questions over the transparency of the dealings.

Undoubtedly, Saudi Arabia is on a track to modernize, and has got the kick start it wanted, but the window of a continued success still remains under radar.

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