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Aramco stocks may hardly see any trade

The Gulf oil giant sold a 1.5 per cent stake in the IPO, while the remainder stays in the hands of the Saudi state

Bloomberg|
Last Updated: Dec 11, 2019, 08.00 AM IST
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To be fair, even companies that float most of their shares on the public markets find ways to concentrate power at the top.
London: 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 per cent 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 per cent of their equity owned by independent shareholders.

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

Low public ownership levels mean that the Saudi government can push through decisions that are good for the country, but not necessarily Aramco’s minority shareholders. 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.

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 per cent 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.

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