The company, which manages Saudi Arabia’s vast oil wealth, set a world record with its IPO on Wednesday, raising $25.6 billion and beating Alibaba’s previous mark set in 2014.

A short trading day

It was an historic day for the Saudis as it was once considered far-fetched that the secretive kingdom would sell a piece of  its “crown jewel” to outside investors. But the debut isn’t without controversy. Environmentalists say investors should not be pouring money into what they say is the world’s biggest corporate emitter of carbon dioxide at a time when the world is moving towards green energy to combat climate change.

Chairman Yasir al-Rumayyan and Chief Executive Amin Nasser rang the opening bell at a glitzy ceremony at the Saudi stock exchange as dramatic music played. Green and blue (the company’s colors) spotlights flashed and confetti fell on onlookers.

The stock’s long-awaited first day of trading was over quickly as, after the opening auction, the shares opened up 10%, the limit on price moves for any one session. The shares hit 35.2 Saudi riyals ($9.39), compared with the IPO price of 32 riyals. According to the Tadawul exchange, turnover was $300 million, or 31.6 million Aramco shares, a relatively small figure that indicates investors held onto their shares.

That first-day pop raised Aramco’s valuation to around $1.88 trillion, within touching distance of the $2 trillion price tag that Crown Prince Mohammed had set his sights on when he first raised the possibility nearly four years ago that the Saudi government could privatize a stake in the world’s biggest oil producer.

“This is a proud and historic moment for Saudi Aramco and our majority shareholder, the Kingdom, as Saudi Aramco begins life as a listed company on Tadawul,” al-Rumayyan said in a statement. “My focus, and that of our Board of Directors, is to work in the interests of all shareholders, guiding Saudi Aramco as it continues to fulfil its vital role in global energy supply, whilst striving to create long-term value to benefit all shareholders.”

Zachary Cefaratti, CEO of Dalma Capital, a Dubai-based asset manager that bought Aramco shares in the IPO, said in an investor’s note on Wednesday that, based on today’s demand, he expected Aramco to surpass a $2 trillion valuation on its second day of trading, on Thursday.

Will the greenshoe drop?

Aramco is the world’s most profitable company. Its $111 billion of net income last year exceeding the combined profits of Apple and Microsoft in their latest fiscal years. It produced 10.3 million barrels a day of oil last year, and has 52 years of oil reserves.

The strong demand for shares makes it likely that underwriter Goldman Sachs will invoke the so-called “greenshoe” over-allotment option, selling 15% more shares and raising the IPO’s value to $29.4 billion.

The IPO will quite literally put Saudi Arabia’s small Tadawul stock exchange on the map. Adding Aramco’s entire valuation would push the Tadawul into the world’s top-10 ranking for global exchanges by market capitalization. However, the Tadawul announced new rules this month, capping the weight of any one stock in the Tadawul all-share index at 15% to avoid Saudi Aramco dominating the index.

Many Western investors have steered clear of the IPO, seeing it as over-valued. A survey of 31 international asset managers released by brokerage Bernstein last week found that, on average, the investors valued Aramco at only around $1.26 trillion.
Andy Critchlow, head of news in Europe, the Middle East and Africa for energy specialist S&P Global Platts, told CNBC that big fund managers in London were skeptical about the Aramco IPO because of the price and because of their need to assess it against environmental, social and governance (ESG) criteria used by socially conscious investors.

“You’ve got to look at an environment for investing in oil and gas now where fund managers really do have to take into account these ESG issues,” Critchlow said, adding that Saudi Arabia’s oil output accounted for about 1.6 billion tonnes of carbon dioxide a year, equal to about a third of Europe’s entire output.

Ten environmental groups wrote to the investment banks underwriting the IPO before the offer to protest their involvement, saying that enabling Aramco and other oil companies to extract their crude was “a recipe for financing the destruction of the planet.”

A very small “P”

As IPOs go, this one hasn’t been very public. The Saudi government is selling just 1.5% of Aramco—or 1.725% if the greenshoe option is taken up—and it has sharply scaled back its original ambitions for the offer.

The Saudis had initially hoped to sell up to 5% of shares in Aramco on an international exchange to raise up to $100 billion to help finance Crown Prince Mohammed’s “Vision 2030” plan to diversify the Saudi economy and lessen its reliance on oil. But it eventually opted for a local listing, deciding that the regulatory requirements and legal risks of an international listing were too onerous.

In the face of Western investors’ objections that the price was too high, Aramco abandoned plans to actively market the shares in the United States, Europe and Asia in the run-up to the IPO, opting instead to focus on drumming up investment from “family and friends” in Saudi Arabia and the Gulf region.

Achieving the $2 trillion price tag has become a point of honor and prestige for Saudi leaders and they have battled against skeptics in Western investment circles who say that the company is worth little more than half that.

Saudi Energy Minister Prince Abdulaziz bin Salman countered at last week’s OPEC press conference in Vienna that Saudi Aramco would eventually achieve the $2 trillion valuation and that skeptics in the media would be forced to eat their words.

The IPO, driven by an intensive local advertising campaign, drew strong interest from individuals and institutions in Saudi Arabia and the Gulf. More than 5 million retail investors applied for shares and, in total, subscribers bid for 4.65 times the number of shares on offer.

The Saudi government has made changes to taxes and royalties applied to Saudi Aramco to make it a more attractive investment and Aramco has promised a minimum dividend of $75 billion a year for the next five years. That may seem generous, but it’s calculated from a yield lower than that of some Western oil majors. Small investors have an incentive to hold on to the shares for now because they will get a bonus share for every 10 shares held for 180 days.

Saudi Arabia, other OPEC countries and their allies last week approved deeper cuts in oil output to support the crude price in what some analysts saw as an attempt to boost Aramco’s value ahead of the IPO, although the Saudi government denied that.

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