London Stock Exchange chairman hails Saudi Arabia’s ‘forward-thinking leadership’ at BMG forum

Chairman of London Stock Exchange Group (LSEG), Donald Brydon, at the 12th BMG Economic Forum in London. (AN/ Ziyad Alarfaj)
Updated 16 July 2018
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London Stock Exchange chairman hails Saudi Arabia’s ‘forward-thinking leadership’ at BMG forum

  • Donald Brydon praised Saudi Arabia for investing in human capital and the nurture of small and medium-sized enterprises in the Kingdom
  • The high-level forum will discuss investment opportunities in Kingdom

LONDON: The chairman of the London Stock Exchange Group has urged Saudi Arabia to press on with its Vision 2030 reforms, saying the UK was a “natural partner” in the Kingdom’s economic diversification strategy.

Speaking at the opening of the annual BMG Economic Forum, held in conjunction with Arab News, LSE chairman Donald Brydon said London would would provide “a gateway and a bridge” for international capital for such privatizations.

“The Kingdom’s time for privatizations is now, and the UK is the natural partner to ensure the successful delivery of these,” Brydon told attendees of the forum held at the bourse’s London headquarters.

“London is especially well placed to provide the Kingdom a gateway and a bridge to global investors and attracting foreign direct investment to London’s internationally oriented investor base.

“We can draw on our experiences to support the Kingdom as it takes its rightful place as a global investment power hub and to help deepen liquidity in the Saudi capital market.”

The privatization of key state assets is a central part of Saudi Arabia’s Vision 2030 strategy, unveiled in 2016, as part of a strategy to reduce its dependence on oil revenues.

“Privatizing selected government services will improve quality of services and reduce government’s spending while taking into account citizens’ interest,” the Vision 2030 program stated, and “will also help the government to refocus its efforts on its legislative and organizational roles.”

“Moreover, the program will attract foreign direct investments and improve the balance of payments,” it added.

An audience of government officials, regulators, and industry chiefs at the 12th BMG Economic Forum at London Stock Exchange on Wednesday, July 11, 2018. (AN/ Ziyad Alarfaj)

Brydon hailed Saudi Arabia’s “forward-thinking leadership” as he addressed government officials and industry chiefs at the forum in London. He praised Saudi Arabia for investing in human capital and the nurture of small and medium-sized enterprises (SMEs) in the Kingdom.

“The London Stock Exchange is committed to being a strategic partner with the Kingdom to help deliver the Saudi Vision 2030 and beyond,” Brydon said.

Brydon said that Saudi Arabia’s privatization program differed significantly from early attempts by Gulf states in the 1990s to open key areas of the economy to the private sector.

Such moves, he said, ultimately proved unsuccessful, due to limited political buy-in and the failure to provide agreements on terms and conditions for private investors, together with concerns over the loss of control of key industries.

“The good news is that Vision 2030 addresses these concerns and puts in place the framework for successful privatizations,” he said.

Central to the Saudi government’s reform program is the mooted sale of around 5 percent in Saudi Aramco, the world’s largest oil company, which may raise as much as $100 billion.

 Talat Hafiz, Secretary General of the Media and Banking Awareness Committee - Saudi Banks, led the first panel of the 12th BMG Economic Forum, under the theme 'Business and Financial Environments in Saudi Arabia’ on Wednesday, July 11, 2018. (AN/ Ziyad Alarfaj)

The London Stock Exchange is among the international exchanges vying for part of the listing, alongside bourses in New York and elsewhere.

Originally intended for 2018, the IPO now appears unlikely to happen until 2019 at the earliest. Officials at Aramco and the Saudi stock exchange (Tadawul) have so far declined to say whether the listing will occur on both Tadawul and an international exchange, or whether all shares will be listed domestically.

Brydon noted that the London Stock Exchange had raised nearly $400 billion from international privatizations since 1984, with around $290 billion of that figure raised from non-UK privatizations. 

He praised the “far-reaching and world-leading” stock market reforms introduced by Tadawul in the past years, which have prompted index providers MSCI and FTSE Russell to upgrade Saudi stocks to emerging market status this year.

These upgrades, due to be implemented next year, are forecast to attract as much as $50 billion worth of passive and active money into Saudi stocks.

The BMG Economic Forum addressed wider investment opportunities in Saudi Arabia and the Kingdom’s vision for the future.

“This is a new era for Saudi Arabia. An era of great opportunities coupled with great challenges,” said the chairman and CEO of BMG Financial Group, Basil M.K. Al-Ghalayini, as he officially opened the forum.

“Through this forum today, I am sure we can highlight these opportunities and learn how to manage these challenges,” Al-Ghalayini added.

Government officials, regulators, and industry chiefs gathered on the iconic atrium balcony at the London Stock Exchange as the daily 60-second countdown officially marked the start of Wednesday’s trading — and served as a precursor to the forum.

Al-Ghalayini and Dr. Robert Barnes, CEO of Turquoise and global head of primary markets at the London Stock Exchange Group, stepped forward and completed the daily ritual of placing a bespoke engraved glass tablet onto the podium, setting off the 8 a.m. bell.

Talat Hafiz, secretary general of the Media and Banking Awareness Committee at Saudi Banks, led the first panel of the forum, under the theme “Business and Financial Environments in Saudi Arabia.”

“Saudi Arabia is a one-stop shop for investments; we are the heart of the Arab world and an investment powerhouse,” said Hafiz.

Hussain Shobokshi, businessman and consultant and columnist, said: “Our biggest commodity used to be oil. Now, I believe our biggest commodity is youth.”


Oil markets jittery over lower demand forecasts

Updated 18 November 2018
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Oil markets jittery over lower demand forecasts

RIYADH: Oil prices continued to nosedive last week over demand concerns amid an outlook of a slowing global economy. The strong US dollar weighed on both oil prices and the global demand outlook. Currencies weakened against the dollar, eroding their purchasing power.
Brent was down to $66.76 per barrel and WTI dropped to $56.46 per barrel by Friday. The former came close to its one-year low as both the International Energy Agency (IEA) and OPEC released monthly reports that articulated a darkening demand outlook in the short term. This increased fears of an oil demand slowdown. Market fundamentals also suggest that price volatility is likely to remain high in the near-term, although the oil market reached a balance in early October.
OPEC’s Monthly Oil Market Report (MOMR) arrived with bearish sentiments, revising downward its oil-demand forecast for this year and next, for the fourth month in a row. It forecast that global oil demand will rise by 1.29 million barrels per day (bpd) in 2019, 70,000 less than what OPEC expected last month. The MOMR also forecast increasing non-OPEC supply growth for 2019, with higher volumes outpacing the annual growth in world oil demand, leading to an excess in supply. The report was welcomed with open arms by the IEA, which had been at least in part responsible for driving sentiment toward a bear market. Surprisingly, OPEC warned that oil demand is falling faster than expected. Necessary action is a must.
Saudi Arabia is not sitting idly by while oil markets look as if they are heading toward instability. Markets were expecting severe US sanctions on Iran, which could have resulted in supply shortages once Iran’s crude exports went to zero. The unexpected introduction of waivers to allow eight countries to continue importing Iranian oil, was however an eye-opener. Now, as the world’s only swing producer, Saudi Arabia will have to take other measures to balance oil markets and drain excess oil from global stockpiles.
Despite what some analysts are claiming, there is currently no strategy to send less oil to the US to help reduce US stockpiles. Yes, some have claimed that Saudi crude shipments to the US are at about 600,000 barrels per day this month, which is a little more than half of what was being shipped in the summer months. But the reasons for this are related to seasonally low demand, the surge in US inventories and refineries heading into their winter maintenance season. Remember that November crude oil shipments were allocated to the US refiners last month before the US waivers on the Iranian sanctions were revealed. Also, keep in mind that Saudi Arabia owns the largest refinery in the US, which has a refining capacity that exceeds 600,000 bpd.

Lurking on the horizon is the massive US budget deficit and increasing rumblings that the US economic boom is over. 

It must be noted that there is a degree of financial manipulation underway in the oil futures markets. At the moment, there are few places where quick profits can be made, so some investors moved from stocks to commodities. Now, there are downward pressures on oil prices as some commodities market traders went long on oil futures, thinking that crude prices would rise. Then these same traders shorted natural gas, assuming that with a warmer winter, prices of that fuel would fall. Unfortunately for the traders, Trump’s sanction waivers on Iranian crude oil exports and cold weather on the US East Coast, caused exactly the reverse to take place. Oil prices fell and natural gas prices rose. Traders were therefore forced to sell their assets to cover margins, pushing oil prices lower. It is expected that some hedge funds and investment funds will also be moving away from going long on oil futures and this will cause further selling.
Lurking on the horizon is the massive US budget deficit and increasing rumbling that the US economic boom is over. The US federal budget deficit rose 17 percent in the 2018 fiscal year. It is now larger than in any year since 2012. Federal spending is up and amidst US President Donald Trump’s tax cuts, and federal revenue is not keeping pace. To make matters worse, the strong US economy and interest rate hikes by the US Federal Reserve have boosted the dollar.
A strong dollar makes commodities such as crude oil more expensive in international markets and reduces demand. Trump wants oil to be priced as low as possible to help bolster the US economy, which is clearly under strain, and to facilitate sales of crude abroad. But with a looming global oil shortage just a few years away due to a lack of upstream investment, it is incumbent on global oil producers to consider the long term in their output decisions.

* Faisal Mrza is an energy and oil market adviser. He was formerly with OPEC and Saudi Aramco. Reach him on Twitter: @faisalmrza