INTERVIEW: ‘Aramco IPO is going to change markets in the region,’ says strategist Yazan Abdeen

Illustration by Luis Grañena
Updated 16 September 2019

INTERVIEW: ‘Aramco IPO is going to change markets in the region,’ says strategist Yazan Abdeen

  • Yazan Abdeen, CEO of AD Investment Management, part of Invest AD, tells how the share sale will change the perception of MENA markets

Seasoned regional investor Yazan Abdeen has developed a simple formula for successful investing in the Arabian Gulf: “Buy when people cry. Sell when they yell.”

His maxim implies that investors should appreciate the buying opportunities in falling markets, as well as the chances of realizing a healthy profit in periods of market enthusiasm. It has served him well in a career of nearly two decades in the UAE and Saudi Arabia.

Abdeen is chief executive officer of Abu Dhabi Investment Management, managing a portfolio on behalf of InvestAD, one of the UAE’s big investment vehicles owned ultimately by the giant Mubadala. It is, he said, a specialist asset management firm that invests in Middle East and North Africa equities, with a basic strategy of maximizing return while managing risk.

That position gives him a good vantage point from which to survey financial business in the Gulf, and especially in Saudi Arabia, where he worked for several years with SEDCO, the Jeddah-based investment group, and in Riyadh, where he spent much of his youth.

Abdeen’s take on the current state of the Kingdom, as it gears up for the initial public offering of Saudi Aramco — the biggest event in its investment history — is illuminating. Some critics bemoan the relative lack of progress toward the Vision 2030 goals, but he believes analysts should distinguish between the long-term nature of the Vision strategy and the short-term changes that have already been accomplished.

“The National Transformation Program of 2015-16 has definitely created a shock effect in the economy. The previous standard of corporates living through government subsidy been completely changed. 

BIO

BORN:

• 1981, Jordanian citizen

EDUCATION:

• American University of Beirut, BA applied science

• London Business School, MBAs in business administration and business, finance and economics

CAREER:

• Analyst, Capital Trust

• Investment manager, Damac Holding

• VP Asset management, Noor Holding

• Asset manager, Union Properties

• Fund manager, ING Investment Management

• Head of MENA Capital Markets, SEDCO

• Head of Capital Markets, Scope Investments

• CEO and Portfolio Manager, AD Investment Management

“The major changes were seen in the contracting sector, where the main contractors were living off government spending. They would simply put a 5 percent margin on top of the government cost of a project and live off that. This situation has changed drastically. It’s also been felt in the petrochemical sector where subsidies on feedstocks have been reduced or removed,” he said.

Consumers have also felt the effect. Petrol prices have risen, as have utilities bills, as government subventions have been stopped. “I could tell the difference in the electricity bills straightaway when I moved back to Saudi Arabia after some years in Dubai,” he said.

Growth rates in the non-oil sector have slowed as a result of the cuts in government subsidies, but Abdeen believes the short-term pain will be worth it. “It was a systemic shock, but a necessary one for Saudi Arabia to refine the operational viability of the private sector,” he said.

The policy of Saudization has also had a radical effect. “One third of the population was foreign labor, and this has also been changed, creating certain stress points in the economy. The securities that have been most affected are consumer discretionary ones, retail for example, but there are companies that have changed their business modes drastically and growth market share and today are running a profitability level significantly higher than they were in 2015.”

He highlighted the electronics retail group Extra as an example of a Saudi company nimble enough to take advantages of the changes.

Abdeen agreed that the privatization program — which was estimated at one point to bring $200 billion of assets to markets and attract foreign investment through public-private partnerships and other transactions — has been slow to get off the ground, but he pointed to the sale of shares in the bank NCB as an example of a successful Saudi IPO.

He said there was still a lot of pent-up interest in the assets being prepared for sale by the National Privatization Center, and that Tadawul had needed the time to make preparation for more share sales and achieve inclusion into the MSCI index, which has been done.

He sees big opportunities in the tech sector in Saudi Arabia, with its large youthful demographic and high Internet penetration, and also pointed to the big profits Saudi investors made on the $3.1 billion sale of Careem to Uber as positive factors in the Kingdom’s investment scene: “You could argue that Careem was a Saudi company, and it is also the largest market in the region for Careem’s business.” 

In some ways, you might see the Saudi market changes and limited privatization steps so far as preparation for “the big one” — the forthcoming IPO of Saudi Aramco, confirmed to take place on Tadawul, perhaps as a prelude to a global offering, very soon. How does Abdeen view the Aramco IPO?

“I think that Aramco is going to change the platform not just for markets but also for us as asset managers in this part of the world. The weighting of Saudi Arabia in the global indices like MSCI and S&P is between 2 and 3 percent, but with the inclusion of Aramco you are talking about a significant increase, depending on the valuation,” he said.

Because Saudi markets comprise about 60 percent of the value of all regional markets, the Aramco IPO would significantly raise the profile of the Middle East in the emerging markets, he said.

“There is also the nature of Aramco itself. It is not only the most profitable company in the world, it is also the biggest single company producing crude oil. So it will have an impact both on emerging markets and on global markets,” he said.

“Whether you are a Middle East investor, or an emerging markets investor, or indeed a global investor, it is a subject you just cannot ignore. It is important for us as Middle East investors to be part of that offering,” he said.

“The rhetoric hasn’t changed since the beginning, that there will be a Tadawul listing of Aramco, and that is only natural. It needs to be offered locally, but with the Saudi market opening, it means that regional investors like us, and even global investors, will be able to invest in it in Saudi.

“After that, most of the exchanges in the world would like to have a company like Aramco listed on their exchange, but valuation and liquidity will be decisive factors in deciding where else in the world it will list. It needs to be in a global hub of capital, and the big ones around the world are well known — in New York, or London or Tokyo for that matter,” he added.

Although events in Saudi Arabia and at Aramco are taking center stage in most regional asset managers’ minds, Abdeen is still focused on the UAE, where a large proportion of his resources are committed.

He said that the biggest factors determining investor sentiment in the Emirates are commodity prices, interest rates, the real estate market and the health of the banking sector, all viewed against the backdrop of global financial, economic and geo-political pressures.

“The experts say there is a 100 percent probability that the Fed will cut rates in September, and there are two more possibilities to cut in the rest of the year,” he said. Meanwhile, he is conscious of the effect on regional investment prospects of the fallout from trade war between China and the US.

In the UAE, he believes there are challenges in the real estate, retail and some consumer sectors, but he still sees significant investment opportunities elsewhere — in the rapidly consolidating banking sector, as well as certain industrials and logistics equities.

In Dubai, he said that “hope is a stronger emotion that fear” as the emirate gears up for the Expo 2020 extravaganza next year. “The incremental capital spending to host the Expo make for good opportunities, and will drive the corporate sector. The millions of visitors who will come are going to create capital flows that will make for good opportunities. Maybe now is the time to bite the bullet on Dubai investment. It’s certainly not a time to be throwing in the towel.

“It all depends on your appetite for risk. For example, immediately after the global financial crisis you could buy Emaar shares for less than the price they eventually sold just their malls business for; equally, in Saudi Arabia in 2016 the big banks were just too cheap. The big test is, if I buy now and hold the stock for five years, whether I will still be happy,” he said.


Make or break days for global oil ahead of OPEC crunch meeting

Updated 08 April 2020

Make or break days for global oil ahead of OPEC crunch meeting

  • OPEC, led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance
  • On Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third part of the global oil equation – the US

DUBAI: The global energy world, in the midst of crisis as demand slumps to unprecedented levels due to the coronavirus disease (COVID-19) pandemic, faces two days that could make – or break – the oil industry for months to come.
Leading producers from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance that fell apart in Vienna at the beginning of last month.
Then, on Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third important part of the global oil equation – the US, currently the biggest oil producer in the world.
If no deal is reached from the two days of oil summits, the immediate prospect looms of a further fall in crude prices and, with global storage facilities already filling rapidly, the possibility of major exporters “shutting in” oil fields, jeopardizing future production.
Energy experts say the purpose of the meetings is two-fold: To reach agreement on how to limit the vast quantities of oil that are still being produced even as demand collapses; and to present some kind of united front in geopolitical terms in the face of the biggest economic recession since the 1930s.
The most visible immediate sign of any success from the meetings will be an increase in the price of crude oil on global markets. Brent crude, the Middle East benchmark, has lost nearly half its value in the past month.
The first aim – to try to balance oil supply and demand – is the more difficult. Global demand has fallen by at least 20 per cent from the usual daily consumption of around 100 million barrels, oil economists have calculated.
But, following the collapse of the OPEC+ deal that was putting a lid on supply, all producers have been pumping more crude. Saudi Arabia is producing more than 12 million barrels per day (bpd), a bigger volume than at any time in its history. All OPEC members, as well as Russia, have said they will increase output.
In this stand-off, US President Donald Trump intervened last week to say that he had spoken to Saudi and Russian leaders and that he “expected” a cut of 10 million, possibly even 15 million, bpd.
That looks like wishful thinking. For one thing, it would not rebalance markets. Anas Al-Hajji, managing partner of US-based Energy Outlook Advisers, said: “The amount of the cut is relatively small given the major drop in demand.”
There are also some difficult relationships to smooth over in the OPEC+ alliance. Saudi Arabia and Russia exchanged angry statements last weekend, each accusing the other of starting the oil price war. Iran, with big reserves but hampered by US sanctions from exporting in large quantities, said that it might not take part in the conference.
The choreography of the two meetings also presents hurdles. The US will not be present at the OPEC+ meeting, but American Secretary of Energy Dan Brouillette said he would take part in the G20 event.
Because it is a free-market industry, America cannot order its oil producers to reduce output, but most analysts are agreed any attempt to rebalance global supply would be impossible without a US contribution.
By going first, Saudi Arabia and Russia are “playing blind” without knowing what the Americans are thinking. Neither would want to agree big price-restoring cuts only for US producers – under big financial pressure at current levels – to swoop back into the market.
This week there have been some signs that the Americans are considering their own versions of cutbacks. The biggest US company, Exxon Mobil, said it would reduce capital expenditure on future projects by 30 percent; the US Energy Information Administration said oil production would fall by nearly 1 million bpd this year, in response to falling demand and financial pressures.
But even if the Saudis and Russians cut substantially alongside other big OPEC producers such as the UAE, and the Americans enter a long-term pattern of falling demand, it is still hard to see how cuts could reach the 10 million barrels Trump “expects,” let alone 15 million.
J. P. Morgan, the big US investment bank, said that it expects OPEC+ to come up with combined cuts of about 4.3 million barrels, most of that coming from Saudi Arabia, Russia and the UAE. “If it’s 4.3 million it only puts off the day when global storage gets filled completely,” said Robin Mills, CEO of Qamar Energy consultancy.
Storage facilities are nearly at the brim. Malek Azizeh, director of the premium facilities at the Fujairah Oil Terminal in the UAE, joked that he was going to hang a sign on the terminal gates: “Thanks, but no tanks.”