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Saudi Aramco set to be world's most valuable company after $25.6bn shares sale

Sale values oil giant at $1.7 trillion with demand for initial share offering in Riyadh exceeding company's expectations by almost five times
Billboard advertisement for Aramco is displayed in Riyadh on 18 November (AFP/File photo)

State-owned oil giant Saudi Aramco priced its initial public offering (IPO) at $25.6bn on Thursday in a sale that is expected to make it the world's most valuable company when the shares start trading.

The company, which is set to float on Saudi Arabia domestic stock exchange, said it sold three billions shares on Thursday priced at $8.53 (32 riyals) each.

Demand for the shares exceeded the Riyadh's expectations by 4.7 times, and helped the company to exceed the previously largest IPO - the process of offering shares in a private company to the public - achieved by Chinese online retail company Alibaba, which raised $25bn in 2014.

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The initial sale of shares values the oil giant at $1.7 trillion, which falls short of Saudi Crown Prince Mohammed bin Salman's hopes of a $2 trillion valuation.

The IPO may increase if the company decides to sell an additional quantity of shares, to $29.4 billion, according to Reuters.

Riyadh had relied on investment from domestic and regional investors, as well as members of the Saudi royal family, to buy into the 1.5 percent stake that the company put up for sale in the IPO.

Citizens of the kingdom were offered a third of the public offering, according to Reuters.

Concerns ahead

The public offering has been a slow process that has taken years and was postponed in the past amid scrutiny over human rights concerns in the kingdom in the wake of a crackdown on business leaders, the jailing of activists and the murder of journalist Jamal Khashoggi.

Economists also voiced concerns over a lack of transparency in the kingdom. Major stock exchanges including New York and London were in the running for the listing but Saudi Aramco opted last month for Riyadh's Tadawul stock exchange. 

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Uncertainty also increased following an attack on Aramco's oil plants in September. Riyadh and Washington blamed Iran for the attacks; Tehran denies responsibility.

The attack, which caused a $2bn loss in oil output, exposed the company's vulnerability.

Another concern of investors is that an increase in oil production in the US, Canada and Brazil may lead to less demand and negatively impact Aramco's profitability in the near future.

In the long term, some investors are worried that the role played by fossil fuels in climate change will hurt demand for Riyadh's vast oil and natural gas reserves.

The International Energy Agency has forecast that world oil demand will decrease in the 2030s amid a rise in increasingly fuel-efficient cars, including electric cars, and increased use of renewable energy.