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

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

(Bloomberg) -- 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.

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

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.

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

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.

--With assistance from Christoph Rauwald, Mathieu Benhamou and William Wilkes.

To contact the reporters on this story: Ben Scent in London at bscent@bloomberg.net;Jacqueline Gu in New York at jgu113@bloomberg.net

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, ;Yue Qiu at yqiu47@bloomberg.net, Amy Thomson, Rakteem Katakey

©2019 Bloomberg L.P.