How Saudi Aramco Bumped up its Share Price

Foreign direct investment professional Rebecca Gaskin Gain is a principal at Nexant, Inc., where she leads a team of transaction advisors in the energy industry. With her finger on the pulse of global energy, Rebecca Gaskin Gain recently tweeted about Saudi Aramco’s initial public offering (IPO) share pricing.

In its IPO, Saudi Aramco found a way to raise its share price by simply floating fewer shares on Saudi Arabia’s Tadawul stock exchange. Initially, crown prince Mohammed bin Salman indicated that he wanted to sell 5 percent of the company’s 200 billion shares at $10 each, giving Saudi Aramco a valuation of $2 trillion. However, a study by Bernstein Research showed that major global investors had valued the company at an average of $1.26 trillion (about $6.30 a share).

For the crown prince intent on achieving a high valuation, the choice was two-fold: sell a high number of shares at a low price or reduce available shares and sell for a high price. He opted for the latter. Saudi Aramco later announced it was selling a 1.5 percent stake (3 billion shares) at a share price of $8.53. The IPO is expected to raise $25 billion with a majority of investors coming from Saudi Arabia and its neighbors.