Saudi Aramco Base Oil Co., a refining unit of the state-owned oil producer, slumped in its trading debut following an initial public offering that raised $1.32 billion.
Luberef, as the refiner is known, dropped as much as 6.6 percent in Riyadh to 92.5 riyals ($24.61), bucking the trend for strong debuts in the Gulf region amid the gloomy outlook for the global economy. It trimmed losses to 2.7 percent by 11:28 a.m. local time, valuing the company at 16.3 billion riyals.
The company slumped in its debut as part of the general decline in regional equities, according to Faisal Hasan, chief investment officer at Al Mal Capital. “Investors are cashing out to put more dry powder in their hands. 2023 is not looking great either.” Saudi private equity firm Jadwa Investment sold 50 million shares—a 30 percent stake—in the offering, for 99 riyals apiece, the top of the pricing range. Oil giant Saudi Aramco is holding onto its 70 percent share. The institutional order book was 29.5 times oversubscribed, according to a statement from the company.
The Gulf has been one of the world’s most active IPO markets in 2022, raising more than $20 billion this year. That’s the second highest on record, topped only by 2019 when Aramco had its $29.4 billion listing. However, while investor demand for new listings has held up, the after-market performance has been weaker as regional equity indexes have come off earlier highs, tracking a decline in oil.
“The IPO was fairly priced, considering the sustainable dividend yield beyond 2023 and in comparison to where the Saudi Interbank Offered Rate is currently,” said Divye Arora, portfolio manager at Daman Investments. “If the bond yields and rates trend lower then the valuation would be quite attractive at the current levels.”
Luberef operates two production facilities on Saudi Arabia’s west coast, producing various base oils and byproducts including asphalt, marine heavy fuel oil and naphtha. SNB Capital, Morgan Stanley, HSBC Holdings Plc and Citigroup Inc. managed its IPO.