Dalma Capital to bid for Saudi Aramco’s shares through 3 funds next week

Dalma Capital will be subscribing to Saudi Aramco via three of the funds that it manages in the DIFC next week.

Saudi Aramco’s stock is a dividend haven, with the cushion of a bond on the downside and the potential for appreciation on the upside, Dalma Capital said in a statement. The government of Saudi Arabia is providing dividend prioritization of US$75 billion from 2020-2024, which effectively offers investors embedded put protection on the price of oil.

Further to this, investors in the stock still have the opportunity to benefit from capital appreciation to the upside if oil prices rise, although there is effective short call optionality on the price of oil in the form of increasing royalties as the price of oil tops $70/barrel and $100/barrel at 45% and 80%, respectively. Aramco’s share price should be less correlated to the price of oil and less volatile than the IOCs due to this embedded optionality, particularly on the downside – translating to a less risky stock with bond-like characteristics.

When combined with Aramco’s significantly reduced cost of production (67% lower than their closest competitor), Aramco’s shares are significantly less risky than their competitors – with a justifiable premium over IOC’s when valuating Aramco on the comparable dividend yield methodology. Valuing Aramco against local dividend yields in the local Saudi shares justifies $2.2trn at the low end, and up to $2.4trn at the high end, further supporting our expectation that Aramco shares will trade higher after listing.

Dalma Capital believes that the cost of risk in Aramco is overstated in the investor community. The recent Abqaiq attacks saw Aramco fully restore capacity within 2 weeks with no missed contracted shipments. This demonstrates Aramco’s resilience to geopolitical risk.

Investors should be reminded that Aramco is less exposed to the greater risk for IOCs – the impact of extraction on the environment and the effect of fossil fuel consumption on the climate. Aramco’s close-to-surface oil extraction has a significantly reduced climate impact and environmental risk compared to shale, deep-sea, tar sands and effectively all of the rest of the world’s oil production. Sometimes, making an impact is about reducing your impact – as the world transitions away from fossil fuels to renewables, Aramco will continue to produce and is likely to be the producer of the last barrel of crude oil humankind consumes.

Access to Aramco’s IPO has been limited to GCC nationals, Saudi residents and registered Qualified Foreign Investors (QFIs), and is presently strongly oversubscribed with the retail books closing at 1.48x and institutional books still open, presently at 1.86x as of November 30th with 4 days business days remaining. In response to foreign investor demand for access to Aramco stock from investors not registered as QFI’s, Dalma Capital has created a delta one access product in the Dubai International Financial Centre (DIFC), via a vehicle uniquely positioned as a domestic GCC investor but still open to foreign investors, the statement concluded.

For more details about Saudi Aramco IPO