Saudi Aramco will soon be worth $2tn but it looks plainly overvalued | Nils Pratley | Business | The Guardian:
Here is a safe prediction: Saudi Aramco will soon formally be worth $2tn (£1.5tn), the valuation reputedly craved by the crown prince, Mohammed bin Salman. It could happen by the end of this week.
One can forecast this event with reasonable confidence for two reasons. First, Aramco’s shares rose by 10%, the maximum permitted, on the first day of trading, so the company’s valuation has already advanced from $1.7tn to nearly $1.9tn. There’s only a short hop to go.
Second, vast financial resources have been assembled with the unofficial aim of getting to the round number. Wealthy Saudi families have been encouraged to buy more shares, the Financial Times reported (paywall). Meanwhile, speculating hedge funds will spy a quick turn from buying and then selling once $1.99tn is seen. Index funds are obliged to play since Aramco will soon be eligible for inclusion in the main emerging market indices. There is momentum to get over the line.
Just don’t make the mistake of thinking $2tn will mean Aramco has wowed the investment world with its reserves, operational skill or even dividend-paying capacity. Quite the reverse. This initial public offering is really only a triumph for the investment bankers’ art of making the best of a bad job.
Here is a safe prediction: Saudi Aramco will soon formally be worth $2tn (£1.5tn), the valuation reputedly craved by the crown prince, Mohammed bin Salman. It could happen by the end of this week.
One can forecast this event with reasonable confidence for two reasons. First, Aramco’s shares rose by 10%, the maximum permitted, on the first day of trading, so the company’s valuation has already advanced from $1.7tn to nearly $1.9tn. There’s only a short hop to go.
Second, vast financial resources have been assembled with the unofficial aim of getting to the round number. Wealthy Saudi families have been encouraged to buy more shares, the Financial Times reported (paywall). Meanwhile, speculating hedge funds will spy a quick turn from buying and then selling once $1.99tn is seen. Index funds are obliged to play since Aramco will soon be eligible for inclusion in the main emerging market indices. There is momentum to get over the line.
Just don’t make the mistake of thinking $2tn will mean Aramco has wowed the investment world with its reserves, operational skill or even dividend-paying capacity. Quite the reverse. This initial public offering is really only a triumph for the investment bankers’ art of making the best of a bad job.
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