Aramco unlikely to pick Tadawul as sole listing venue

Saudi Arabian Oil Co. (Saudi Aramco) is not expected to pick the Saudi stock market (Tadawul) as sole listing venue in its much-anticipated initial public offering (IPO), economists told Argaam.

The state-run oil giant has no option but to select at least another international exchange, besides local listing, given local market's depth and liquidity levels.

“Listing such a tremendous shareholding solely on Tadawul is hard to predict indeed,” said Tamer El Zayat, senior economist at National Commercial Bank. That may entail a major adverse impact on other stocks listed on the exchange.

“The market currently has a very low level of liquidity. A listing of a giant shareholding from Aramco can do nothing but engulf the market,” he added.

A spokesman from Tadawul had announced willingness to serve as exclusive venue for the mega IPO, and the market is gearing up to absorb a tranche, if not all, of the anticipated listing. This week the market announced a series of reforms to increase market depth, liquidity levels and eased rules for foreign investors.

An exclusive domestic listing, however, will give Saudi citizens and residents better chance to grab bigger shares into the stock of the oil giant, but also failure to list internationally may send a negative signal to foreign investors, Raphaele Auberty, MENA country risk analyst at BMI Research, told Argaam.

Until now exchanges from New York to London, Hong Kong and Tokyo have expressed interest to host the 5 percent listing of the oil firm, through which the Kingdom expects to raise as much as $100 billion, indicating a valuation of $2 trillion for the oil giant.

“All the international exchanges will be vying for this coveted listing. However, a private sale cannot be ruled out post domestic listing,” Faisal Hasan, head of investment research at KAMCO Investment Co., told Argaam.

The Aramco share sale was planned after crude prices began to slide, falling to a low of $30 in early 2016 from over $100 in mid-2014. Brent crude prices have since recovered to near-$70 per barrel, providing additional boost to the IPO plans as stronger oil supports Aramco's valuation.

“The higher oil prices will act as a catalyst to move on with the IPO plans,” Zayat said.

BMI Research noted that while oil prices have recovered since IPO plans were announced, they remain low by historical standards.

“However, we caution that the government does not need cash from the IPO in the near term to plug its fiscal deficits, given its large reserves and ability to borrow on the domestic and international debt markets,” Auberty said.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com