Call the plunge protection team (or call the executioner), shares of Saudi Aramco fell on Tuesday for the first time since the behemoth’s IPO last week.
The drop, a “harrowing” 0.7%, comes as MSCI adds the stock to its benchmarks. The Saudis extended the closing auction in order to make room for demand ahead of the addition.
“MSCI flows are often priced in ahead and we see flat or even negative performance during or immediately after the accumulation period”, one Dubai-based CEO told Bloomberg.
The shares traded limit-up on day one last week, and similarly soared in the first hour on the second day before two-way price action emerged.
The Saudis engineered the surge by creating a supply/demand imbalance while simultaneously compelling state investment funds and wealthy families to support the stock. Crown Prince Mohammed also put in place a variety of incentives that encourage investors to hold the shares.
Even after Tuesday’s small decline, the kingdom’s crown jewel is still valued above Prince Mohammed’s $2 trillion “target”.
Aramco is the world’s largest publicly traded company, but has one of the smallest free floats. With just 1.5% of the company sold, the Saudis have effectively ensured that demand outstrips supply.
Jefferies this week initiated coverage with an Underperform. Their price target is just 30 riyals, sharply below the current 37.75. Corporate governance, Jefferies said, is a “major concern”.
The bank did call Aramco an “exceptional company”, though. The problem is that it’s “fully valued” and trades at a “significant premium” to peers.
We just have one question: What peers?