Saudi Aramco's stock is set for an additional boost this week from inclusion into global index compilers, potentially increasing the valuation of the world's most profitable company, following its market debut.
The oil giant, the biggest oil exporting company in the world, will be included in the MSCI on December 17 and the FTSE on December 19, and will also become part of Saudi Arabia's Tadawul All Share Index, which should continue to support the stock, according to market analysts. MSCI, whose emerging market gauge is tracked by investors managing trillions of dollars in invests, will assign Aramco a free float of 0.5 per cent, resulting in a weight of 0.17 basis points in the MSCI Emerging Markets Standard Index.
The inclusion is expected to bring $815 million (Dh2.99 billion) in passive flows, according to estimates by the Dubai-based Arqaam Capital.
"This weight could double once the retail lock up [period for shares] expires after 180 days," Jaap Meijer, head of research at Arqaam said in a research note. "Technical factors continue to be supportive... with MSCI inclusion on December 17 and FTSE on December 19 and limited selling pressure from existing shareholders."
The initial public offering of the world's most profitable company received $119bn in orders for the $25.6bn offering, a 465 per cent oversubscription, that eclipsed Alibaba’s $25bn record for what was largest listing to date in 2014. A total of 1.5 per cent of the company, or about 3 billion shares, were offered to retail and institutional investors and the company may have a second listing in the future on a foreign exchange. With the listing of Aramco, the kingdom's benchmark Tadawul index is now the ninth-largest globally. The market capitalisation of the exchange prior to the listing was about $500bn.
The kingdom's companies, including listed firms, private enterprises, insurance firm and authorised persons, were allocated 37.5 per cent of the tranche shares. Public funds, private funds and funds managed by authorised persons received 26.3 per cent, while government institutions of Saudi Arabia were allocated 13.2 per cent. Foreign investors including GCC investors, qualified foreign investors and non-resident investors through swap agreements received 23.1 per cent.
Aramco’s stock “is not a yield story,” Marwan Shurrab, head of high-net-worth and retail equities brokerage at Al Ramz Capital in Dubai, said in an interview with Bloomberg Television. “It is more of a passive flow story from the inclusions in international indices.”
The FTSE is looking at a preliminary free float of 0.631 per cent. The stock should eventually have a full 0.21 basis points in the FTSE Emerging Markets All Cap Index with $460m of total inflows.
Arqaam Capital said it expects to see only 75 per cent of the flow this week, about $345m, in-line with the phased inclusion of Saudi Arabia into the EM index. Buying from index-tracking funds could consolidate Aramco's market value above $2 trillion, which was reached briefly last week.
