Saudi Aramco, the world’s largest initial public offering, came to market on Wednesday.
Amid a chilly reception from international investors that caused Aramco to put its international aspirations on hold, the Saudi oil giant raised nearly $26 billion by floating its stock on the country’s local market, giving it an estimated valuation of about $1.7 trillion.
Although Aramco’s shares surged above the 32 Riyadh ($8.53) listing price, the company’s valuation was short of the $2 trillion figure initially sought by the kingdom.
All of which makes market analyst Stephen Schork uncertain about the future of oil — and by extension the company’s prospects.
“I'm extremely pessimistic on the future of Aramco,” Schork, who also edits The Schork Report, told Yahoo Finance’s YFi PM.
Schork stated that 75% of the institutional money that the Aramco IPO represents comes from Saudi company funds and government agencies. Meanwhile, 97% of the retail investors are coming strictly from Saudi Arabia — underscoring a lack of buying from global investors initially courted by Aramco’s banking team.
“Of course, they did have a lot of buying… But when you put a gun up to your countrymen’s head and tell them to buy, guess what, they buy,” Schork added.
The company’s early plans to list on a Western exchange in New York or London were squelched by doubts about governance and transparency standards. Meanwhile, the September attack on Aramco’s facilities raised added questions about the security of its oil supplies.
“Two years ago, Aramco was looking to sell 5% of its shares to raise $100 billion,” Schork said.
“But Saudi Arabia went on its roadshow into London and New York, and Western investors balked at the idea,” he added. “So instead of listing its shares on the London Stock Exchange or the New York Stock Exchange, you had a domestic listing because there clearly wasn't enough demand from the investor community.”
‘The future is not oil’
According to Schork, Aramco’s offering arrives ten years too late given long-term trends reshaping the oil market. Two macro factors involve waning demand in the face of a slowdown, and massive crude supply coming from the U.S. shale boom.
“What we've seen over the last two years was a significant, massive tectonic shift, not only in supply and demand fundamentals, but of course, a long term [shift] in the mindset of this younger generation coming into the market,” the analyst said.
Concerns over climate change are also at the forefront of political conversations. Schork noted that oil giants like BP (BP) and Exxon (XOM) are looking to rebrand themselves as “energy” companies that dabble in renewable and clean energy.
“The future is not oil,” Schork told Yahoo Finance, explaining why that bodes ill for Saudi Aramco.
“And yet we've got an oil company that now is theoretically 1.4 more times expensive or valuable than Apple. That doesn't jive as far as I'm concerned.”