By Marwa Rashad, Saeed Azhar and Stephen Kalin
RIYADH/DUBAI (Reuters) - Saudi Aramco (SE:2222) shares surged the maximum permitted 10% above their IPO price on their Riyadh stock market debut on Wednesday, in a move hailed by the government as a vindication of its towering $2 trillion (£1.56 trillion) valuation of the state oil company.
The shares leapt to 35.2 riyals ($9.39) each, up from the initial public offering (IPO) price of 32 riyals and at the daily limit of price moves allowed by the Tadawul exchange.
That gives Saudi Arabian Oil Co (Aramco) a market value of about $1.88 trillion, comfortably making it the world's most valuable listed company and closing in on the $2 trillion price tag long coveted by Saudi Crown Prince Mohammed bin Salman.
"It's a great day for Saudi Arabia and the leadership of Saudi Arabia and for the people of Saudi Arabia. It's a D-Day for Aramco, it's a day of reckoning and vindication," Energy Minister Prince Abdulaziz bin Salman told Reuters in Madrid.
Aramco raised a record $25.6 billion in its IPO last week, the culmination of a years-long effort by the Crown Prince to open up the energy giant to outside investors and raise funds to help diversify the economy away from oil.
But the kingdom cut back original plans to sell a 5% stake and include a foreign listing after lukewarm interest from international investors worried about Aramco's governance, the environment and regional instability - particularly after drone attacks on major Aramco facilities in September.
The company sold just a 1.5% stake and relied on mainly domestic and regional buyers.
Prince Abdulaziz said last week that Aramco was worth well over its IPO valuation of $1.7 trillion and predicted investors who didn't buy into the offering would be "chewing their thumbs" after missing out.
The flotation propels the Riyadh bourse into the world's top 10 by value of listed companies.
The early share price gain values Aramco at more than six times U.S. oil major Exxon Mobil Corp (XOM); more than twice Saudi Arabia's annual gross domestic product; and far ahead of U.S. tech giant Apple's (O:AAPL) $1.2 trillion price tag.
"This is a successful IPO and the Aramco listing will add depth to the local market by providing exposure to a vital sector of Saudi Arabia's economy," said Bassel Khatoun, managing director, frontier and MENA at Franklin Templeton Emerging Markets Equity.
"We are hopeful that Saudi Aramco uses the Tadawul listing as a springboard to an eventual international listing."
But investing in Aramco is a bet on the price of oil and growth in global demand for crude is expected to slow from 2025 as global steps to cut greenhouse gas emissions are rolled out and the use of electric vehicles increases.
'GROWTH POTENTIAL'
Finance Minister Mohammed al-Jadaan told Reuters the bulk of the IPO proceeds would be used on domestic projects, while the global buzz around the listing would help attract foreign capital into the Saudi economy.
"Productively deployed, we believe the assets could also help maintain growth potential through our three-year ratings horizon," credit ratings agency S&P said in a recent report.
Aramco's debut comes as oil prices are being supported by a Saudi-orchestrated move by OPEC and oil producing allies to commit to some of the industry's deepest output cuts in a decade to try to avert oversupply.
Aramco shares began trading half an hour after the market open as the bourse allowed extra time for investors to place bids in the "opening auction" in anticipation of high demand.
Aramco chairman Yasir al-Rumayyan and Tadawul's top executives rang the bell to start trading. Within the first hour, 766.8 million shares had changed hands, more than for any other Riyadh listed stock.
Aramco stock will become part of Tadawul index by next week and global benchmarks such as MSCI and FTSE later this month, which analysts said should fuel demand, particularly from investors who track such indexes.
The Saudi index (TASI) was up 1.1% at 1115 GMT.
Saudi retail investors who hold their Aramco shares for six months from the first day of trading can get up to 100 bonus shares, or one for every 10 held, which could limit supply of the stock, said Zachary Cefaratti, CEO of Dalma Capital.
Aramco will have the second biggest weighting on the Tadawul index of 9.7%, according to Al Rajhi Capital. Al Rajhi Bank (SE:1120) has the biggest weighting at 14.6% due to its larger free float.
If Aramco shares gain 10% on both Wednesday and Thursday, its valuation will surpass $2 trillion. The company is expected to be included in the MSCI emerging markets index on Dec. 17.
Aramco did not name its investors during the IPO process, but sources familiar with the matter have told Reuters the Abu Dhabi Investment Authority (ADIA) and Kuwait Investment Authority (KIA) bought shares.