After Aramco’s Record IPO, Barely Any of Its Stock Will Trade

By 

Ben Scent

 and 

Jacqueline Gu

December 10, 2019, 4:54 AM EST Updated on December 10, 2019, 12:21 PM EST

•  
  Oil giant to surpass Apple as world’s biggest listed company
•  
  Aramco’s 1.5% free float is among the lowest globally

An advertisment for the Saudi Aramco IPO stands beside a highway in Eastern Province near Dhahran. Photographer: Tasneem Alsultan/Bloomberg

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Saudi Aramco will surpass Apple Inc. as the world’s biggest listed company when it debuts this week after a record-breaking initial public offering. Unlike the tech titan it displaces, barely any of its shares will trade.

The Gulf oil giant sold a 1.5% stake in the IPO, while the remainder stays in the hands of the Saudi state. That free float, or the proportion of stock owned by public investors that can change hands, is among the lowest globally. Many of the biggest companies, from Amazon.com Inc. to Microsoft Corp., have more than 80% of their equity owned by independent shareholders.

Aramco Opens Up, Just Barely

Biggest listed company to have one of world's smallest free floats

Source: Bloomberg

Note: Values are calculated using Dec. 6 close. Aramco market capitalization based on company's IPO price. Free floats for Alphabet and Facebook measured for their class A stock. The companies also have other share classes with different ownership levels.

Among the top 1,000 listed companies by market value, only two have lower free floats than Aramco, according to data compiled by Bloomberg. One is carmaker Audi AG, which has a float of 0.36% with the rest owned by manufacturing behemoth Volkswagen AG. The other is state-controlled German utility EnBW Energie Baden-Wuerttemberg AG, which has 0.37% of its stock in public hands, the data show. Its two biggest investors each own 46.75%.

 Low public ownership levels mean that Saudi Arabia can push through decisions that are good for the country, but not necessarily for Aramco’s minority shareholders. A statement on Tuesday showed that state control will be even greater than previously thought: government entities bought 13.2% of the Aramco IPO shares sold to institutions.

The company, which starts trading Wednesday, will also be captive to OPEC. Saudi Arabia is the de-facto leader, meaning Aramco may have to shoulder the burden of production cuts if others don’t meet their obligations.

Index Funds

That level of control could affect your retirement account. Thanks to the popularity of index-tracking funds, many investors will own Aramco shares whether they want to or not.

The company is so big that index compilers like MSCI Inc. and FTSE Russell can speed up its inclusion in global benchmarks. Aramco will likely be given a weighting of about 0.7% in the MSCI Emerging Markets Index, triggering $2.4 billion of automatic buying from funds that follow the gauge, according to analyst estimates.

 To be fair, even companies that float most of their shares on the public markets find ways to concentrate power at the top. Silicon Valley behemoths like Facebook Inc. have special stock classes giving founders outsized control over decision-making.

Fund managers have given Mark Zuckerberg the benefit of the doubt, thanks to strong returns he’s delivered. The question is whether they’ll do the same for Saudi Crown Prince Mohammed bin Salman.

MARKETS Next Stop, $1 Quadrillion Getty Images For a brief time yesterday, the world was home to a company worth $2 trillion. Saudi Aramco shares gained over 4.5% on the company’s second day of trading, briefly topping the mark then falling to close at a market cap of $1.96 trillion.  Why that number is important: It’s 2 trillion freaking dollars. Also, it’s the target Saudi Crown Prince Mohammed bin Salman first set when he announced plans to list the oil and gas company in 2015.  Captain Obvious reporting for duty: Aramco is the largest publicly traded company in the world, and it’s not even close. Second-place Apple has a market cap of $1.2 trillion. Microsoft is close behind. Market cap, or market capitalization, is the total value of a company’s shares. You can do it at home by multiplying the stock price by the total number of outstanding shares.  Zoom out: Aramco’s IPO is unusual in that its free float, or the amount of shares made available for public trading, is tiny. Here’s a chart from Bloomberg that shows what we mean.