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.

Opinion

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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.

 


Oil retreats in face of renewed coronavirus uncertainty

Updated 22 February 2020

Oil retreats in face of renewed coronavirus uncertainty

  • G20 finance leaders to meet in Saudi Arabia at the weekend to discuss risks to the global economy
  • OPEC+ has been withholding supply to support prices and many analysts expect an extension or deepening of the curbs

LONDON: Oil prices fell on Friday as weak Asian data and a rise in new coronavirus cases fuelled uncertainty about the economic outlook while leading crude producers appeared to be in no rush to curb output.

Brent crude was down $1.56, or 2.6 percent, at $57.75 in afternoon trade, while U.S. crude dropped $1.25, or 2.3 percent, to $52.63.

"With Brent failing to breach the $60 level on Thursday despite better than expected U.S. oil inventory data, rising market uncertainty is dragging down oil prices on Friday," said UBS analyst Giovanni Staunovo.

"Market participants who benefited from the price rise in recent days might prefer not to go into the weekend with a long position."

 

China reports rise in coronavirus cases.

Japan factory activity shrinks at fastest pace since 2012.

Russia says early OPEC+ meeting no longer makes sense.

Finance leaders from the Group of 20 major economies meet in Saudi Arabia at the weekend to discuss risks to the global economy after new Asian economic and health data kept investors on guard.

Beijing reported an uptick in coronavirus cases on Friday and South Korea reported 100 new cases, doubling its infections. In Japan, meanwhile, more than 80 people have tested positive for the virus.

Factory activity in Japan registered its steepest contraction in seven years in February, hurt by fallout from the outbreak. 

"We still believe that the market is likely to trade lower from current levels, given the scale of the surplus over the first half of this year, and the need for the market to send a signal to OPEC+ that they must take further action at their meeting in early March," said ING analyst Warren Patterson.

Russian Energy Minister Alexander Novak said on Thursday that global oil producers understood it would no longer make sense for the Organization of the Petroleum Exporting Countries and its allies to meet before the planned gathering.

The group, known as OPEC+, has been withholding supply to support prices and many analysts expect an extension or deepening of the curbs.