Saudi could earn $34 bln from privatization by 2022: MUFG

Saudi Arabia stands to see $34.3 billion in revenues from its privatization program over the next five years, as part of wider economic diversification efforts to boost non-oil revenue, according to Japan’s largest bank, MUFG. 

The world’s top oil exporter will need $118 billion to finance its fiscal deficit from 2018-2022, with $51 billion needed in 2018 alone, said Ehsan Khoman, head of research and MENA strategist at MUFG.

The funds will be raised through five key strategies: privatization initiatives, foreign debt issuance, domestic debt issuance, foreign reserve and sovereign wealth fund (SWF) drawdowns, and banking deposit drawdowns.

According to the bank, Saudi Arabia can expect to generate $37.8 billion from foreign debt issuance, $30.7 billion from domestic debt issuance, $13 billion from foreign reserve and SWF drawdowns, and $2.4 billion from banking deposit drawdowns over the next five years.

As part of wide-ranging reforms under its Vision 2030 plan, the Kingdom has earmarked 16 sectors for privatization programs in coming years. These include oil, healthcare, education, airports, and grain milling.

While there have been previous reform cycles during periods of low oil prices, MUFG said it expects this time to be “genuinely different” for Saudi Arabia, with the new leadership showing stronger willingness to adapt to changing oil market dynamics.

“We think that this time there is a strong basis for meaningful structural changes in Saudi Arabia because OPEC is no longer the swing producer. We think that shale is now the firm global swing producer in energy markets and of course the Kingdom and the rest of the GCC are aware of this,” Khoman said at a media briefing.

A key part of Saudi Arabia’s privatization program is the sale of a five percent stake in oil giant Saudi Aramco, set to be floated on the domestic stock exchange (Tadawul) and potentially on an international venue.

Last year, Tadawul CEO Khalid Al Hussan told the Financial Times that the Saudi bourse aspires to be the exclusive venue for the listing.

Politically, listing on a Western exchange in addition to Tadawul could help strengthen Saudi ties with the US or Europe, MUFG said. Meanwhile, an Eastern stock exchange could be less challenging in terms of disclosure requirements but also yield fewer geopolitical benefits.

When asked about the likelihood that Aramco’s initial public offering (IPO) will still proceed as planned, Khoman noted that the bank’s view is the listing will “definitely happen.”

“The credibility of the authorities if they do not do the IPO will be brought into question. They communicated very well to the market that they will do an IPO in some shape or form. I think the Tadawul IPO is a guarantee,” he said.

Write to Jerusha Sequeira at jerusha.s@argaamnews.com