Tadawul has contingency plans to handle full Saudi Aramco IPO

Khalid Al-Hussan, CEO of the Saudi Stock Exchange (Tadawul), is ready for the Saudi Aramco IPO in whatever shape it comes. (Reuters)
Updated 02 May 2018
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Tadawul has contingency plans to handle full Saudi Aramco IPO

  • Tadawul has capacity to handle entire listing
  • Stock exchange has central counter-party clearing house

RIYADH: The Riyadh stock exchange has a range of options for a possible listing of shares in Saudi Aramco later this year, the chief executive of Tadawul told Arab News.

Khalid Al-Hussan said that the exchange was ready to list all the shares in a potential initial public offering of 5 percent of Aramco shares, which could be worth $100 billion at current official estimates.

Speaking on the sidelines of the Euromoney conference in Riyadh, he said: “The Saudi economy has the capacity to take care of the whole IPO. There is untapped capacity outside the exchange if we need that, from corporates, individuals and foreign investors.”

Some experts have cast doubt on the Tadawul’s ability to digest such a big share offering as Aramco, which would account for nearly 20 percent of its market capitalization of around $530 billion.

They have argued that other stock markets, like New York or London, would have to be involved in the IPO, or that some shares could be sold to private investors.

Al-Hussan’s comments will add to increasing speculation that the government is leaning toward a Saudi listing before the end of this year.

He insisted that the exchange was ready and able to undertake the full listing, if asked, though he allowed that the final decision was up to the government, which would issue the shares.

“It has been determined clearly that the Tadawul is the home exchange, but the issuer will make the decision on whether it is the only exchange. What we have done is to prepare a case for each scenario, so that whenever we get the full detail on the IPO, we will have done our preparation. We have looked at all the contingencies for each scenario.”

However, he made clear that his preference was to undertake the IPO exclusively on Tadawul. “I aspire to have the whole IPO on Tadawul. But of course I’m looking at it from an exchange point of view, whereas the owner is looking at it from a national point of view,” he said.

Al-Hussan said that all the necessary regulatory, technological, operational and human preparation had been done to allow a full Aramco IPO. “We are all ready to welcome such a unique national IPO as Aramco onto the Tadawul,” he said.

“If the world comes to Aramco (via an exclusive listing on Tadawul), we are open to that and our market is accessible. If Aramco goes to the world (by listing on another market in addition to Aramco) we welcome that too, and we are ready to compete with the global exchanges,” he said.

Tadawul — the biggest and most liquid exchange in the Gulf — has been talking to other regional exchanges about the possibility of dual listings ahead of what is expected to be a rush of IPOs as the Saudi privatization program gets underway. Al-Hussan said this process was ongoing.

“We have to focus on bringing more IPOs to market, we have to persuade corporates of the benefits of going public. We are telling them to start the process of due diligence now in preparation. When you pull the trigger to go public, that is your decision, but you have to be ready,” he said.

Tadawul also announced that it has set up a central counter-party clearing house in order to diversify investment opportunities and bring in new asset classes such as derivatives.

“This will enable Saudi companies to hedge against risks, which will enhance the attractiveness of the Saudi capital market to all investors. It will improve risk management of the market buy introducing new mechanisms to ensure that the settlement is compete and that all parties meet their obligations when settling trades in the market.

The new clearing house has been set up in the from of a closed joint stock company with SR600 million ($159.9 million) of capital. Equity settlement is expected to start in the second half of next year, with derivative settlement a year later.

FASTFACTS

Factoid

A 5 percent listing of Saudi Aramco stock could be worth as much as $100 billion


Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019
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Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.