Saudi Aramco IPO termed a ‘unique investment proposition’

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The Saudi Aramco oil facility in Dammam, 450 kilometers east of Riyadh. (AFP)
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The Saudi Aramco oil facility in Dammam, 450 kilometers east of Riyadh. (AFP)
Updated 04 November 2019

Saudi Aramco IPO termed a ‘unique investment proposition’

  • In a few weeks, investors will be able to deal in shares in the world's most profitable company
  • The international aspects of the biggest share sale in history will have to wait a little longer

DHAHRAN/DUBAI: The 21-page document published by Saudi Aramco on Sunday in Dhahran seemed almost anticlimactic, after all the hype that had initially surrounded it. 

But those dry-as-dust business phrases have kicked off a process that could transform the lives of Saudi Arabia’s citizens and residents, the international energy industry and the world of high finance.

In a few weeks, Saudi citizens, resident expatriates and professional foreign investors in the Kingdom will be able to buy and sell shares in the most profitable company in history on the Saudi Stock Exchange (Tadawul).

Over the next couple of years, there are likely to be more share sales, either to big investing institutions and industry partners around the world, or on a foreign stock market — perhaps even both.

Aramco, already a global giant in its commercial operations, will be a truly international company in its investor makeup too.

FASTFACT

$75 billion

Total cash dividends declared for 2020 by Saudi Aramco.

As Yasir Al-Rumayyan, chairman of Aramco and governor of the Kingdom’s Public Investment Fund, said, it is a “milestone” in the company’s 81-year history, and in the history of Saudi Arabia.

It will be a “unique investment proposition,” as the document understatedly recognized. The Vision 2030 reform plan, designed to open the Kingdom up to the world, will have a truly global corporate champion.

But the international aspects of the biggest share sale in history will have to wait a little longer. 

The initial public offering (IPO) announced on Sunday will, at least initially, be a largely Saudi affair.

The Kingdom’s citizens will be given encouragement and incentives to take up shares, its own financial and investment institutions are likely to be the most enthusiastic buyers of the shares on offer, and Saudi stock markets will be the area where valuations will be tested.

In the section titled “IPO Retail Incentive Arrangement,” the document sets out the benefits that people living and working in the Kingdom can expect.




The petroleum giant, having now received approval, will list a small number of shares on the Saudi stock exchange Tadawul, in an initial public offering.  (AFP)

Retail investors, under “tranche B” of the issue, are the individuals who want to buy or sell shares on their own account, rather than as part of an investing institution.

Saudi nationals, including female divorcees or widows with Saudi minors, can buy shares for themselves and their families (as long as they are registered on the family ID card), and will be eligible to receive bonus shares (100 each, as long as they hold the original IPO shares for a minimum of 180 days after first listing).

The IPO is open not just to Saudi citizens, as another part of the document makes clear. “Any non-Saudi natural person who is resident in the Kingdom and any Gulf Cooperation Council national” can also buy shares and be eligible for the bonus issue, as long as they bank with one of the institutions on the IPO-approved list.

The government wants to make the IPO popular and profitable. Some analysts have warned of the risks if smaller investors take on extra debt to buy shares and are left with big loans if the shares do not perform well.

While the retail element to the IPO is important for symbolic and patriotic reasons, the big money will come into the offering via global institutional investors, which are the driving force in any financial system.

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They will fall under tranche B of the offer, and will likely receive a share allocation at least four times those eligible under tranche A.

Many of these potential investors will be big Saudi investment groups (banks, insurance companies or pension funds) that already buy and sell on a daily basis on Tadawul. But foreigners will also be eligible to take part in the IPO.

The Capital Markets Authority (CMA), which regulates Tadawul, has already opened up the Saudi market to foreign investing institutions, provided they meet the standards for “qualified foreign financial institutions.” 

Many have piled into the market after Tadawul gained admission to global index rankings such as the MSCI marker this year.

Sunday’s document took further measures to strengthen the appeal of the IPO to foreigners, with the creation of a “specialized investor” category, subject to the approval of the CMA.

It is among these key foreign investing institutions that much of the debate will be focused, especially among those from Europe and North America.

In the run-up to the announcement, it was these investors that harbored the biggest doubts about valuation and governance concerns in the IPO. 

But Aramco is advised by the cream of financial institutions in Wall Street and the financial centers of Europe, which will be well paid to ensure that the IPO is a success among foreign investors.

 


Alibaba confirms huge Hong Kong public listing worth at least $13bn

Updated 45 min 18 sec ago

Alibaba confirms huge Hong Kong public listing worth at least $13bn

  • Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade
  • Alibaba Chief Executive Officer said the group wanted to participate in Hong Kong’s future

HONG KONG: Chinese technology giant Alibaba on Friday confirmed plans to list in Hong Kong in what it called a $13 billion vote of confidence in the turbulent city’s markets and a step forward in its plans to go global.
The enormous IPO, which Hong Kong had lobbied for, will come as a boost for authorities wrestling with pro-democracy protests that have tarnished the financial hub’s image for order and security and hammered its stock market.
Alibaba will offer 500 million shares at a maximum of HK$188 apiece to retail investors, the company said. The number eight is considered auspicious in China.
Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade after insurance giant AIA raised $20.5 billion in 2010.
Alibaba had planned to list in the summer but called it off owing to the city’s long-running pro-democracy protests and the China-US trade war. The US and China are now working on sealing a partial trade deal.
Daniel Zhang, Alibaba Chief Executive Officer, said the group wanted to “contribute, in our small way, and participate in the future of Hong Kong.”
“During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” he said.
The firm’s shares are already traded in New York. A second listing in Hong Kong is expected to curry favor with Beijing, which has sought to encourage its current and future big tech firms to list nearer to home after the loss of companies such as Baidu to Wall Street.
In the statement, Zhang said that when Alibaba went public in 2014 it “missed out on Hong Kong with regret.”
Mainland authorities have also stepped up moves to attract such listings, including launching a new technology board in Shanghai in July.
The listing comes after the city’s exchange tweaked the rules to allow double listings, while Chief Executive Carrie Lam had also been pushing Alibaba’s billionaire founder Jack Ma to sell shares in the city.
“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said.
It has long been expected to launch a multibillion-dollar stock listing in Hong Kong but appeared to postpone the offering because of political and economic turmoil.
Hong Kong’s key Hang Seng Index rose 0.48 percent in morning trading following the announcement
Chinese shoppers set new records for spending on Monday’s annual 24-hour “Singles’ Day” buying spree, despite an economic slowdown in the country and the worries over the US trade war.
It said consumers spent $38.3 billion on its platforms over that stretch, up 26 percent from the previous all-time high mark set last year.
Alibaba also said it saw record amounts of cross-border sales, underlining its plans to expand globally.
“Globalization is the future of Alibaba Group. We firmly believe the marriage of digital technology and commerce will bring about unprecedented change that will not be limited by borders,” Zhang said.