Saudi central bank ready for any Aramco-related liquidity squeeze

Saudi Arabia's Central Bank Governor, Ahmed Al-Kholifey, said the bank has set up a team specifically to closely monitor all indicators in the banking system during the Saudi Aramco IPO process. (File/Reuters)
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Updated 10 December 2019

Saudi central bank ready for any Aramco-related liquidity squeeze

  • Aramco’s long-awaited listing on the Saudi Arabian stock exchange is due on Wednesday
  • The central bank has set up a team to closely monitor all indicators in the banking system during the IPO

RIYADH: Saudi Arabia’s central bank is ready for any liquidity squeeze from Saudi Aramco’s initial public offering (IPO) and is closely monitoring local banks, its governor said, after heavy demand for loans to buy the stock.
Aramco’s long-awaited listing on the Saudi Arabian stock exchange is due on Wednesday, completing the largest IPO on record and raising $25.6 billion from retail and institutional buyers who took on debt to back their orders.
“We don’t rule out that there might be squeeze of liquidity later on, that’s why I am ready and stand ready to intervene,” Ahmed Al-Kholifey told Reuters.
Saudis had clamoured to own part of the “crown jewel” of the world’s top oil exporter in the lead up to its IPO, with Aramco’s institutional tranche 6.2 times oversubscribed, while more than 5 million individuals subscribed to a retail tranche.
The Aramco IPO is the centerpiece of the Saudi crown prince’s plans to diversify the economy away from a reliance on oil, as the money will be reinvested by the Saudi Public Investment Fund (PIF) to promote growth in other sectors.
During the IPO process, the loan-to-deposit ratio (LDR) at some banks had exceeded a 90% “soft guideline” set by the regulator, but the ratio improved after the allocation process ended, Kholifey said in an interview.
“So far no bank has come to ask for liquidity from the central bank. We are ready to intervene in case there is a squeeze of liquidity but most of the indicators right now are not worrying,” Kholifey added.
MONITORING TEAM
The central bank has set up a team specifically to closely monitor all indicators in the banking system during the IPO process, and it held meetings on a daily basis.
“I don’t think in the near future they will settle, we have to keep monitoring the situation until we see things are normal, especially the LDR,” he said.
Saudi corporates snapped up the biggest percentage of allocations to the Aramco IPO at 37.5% and Saudi government institutions were allocated 13.2% of the institutional tranche, the latest figures issued by the deal’s lead bank showed.
Kholifey said that less than 2% of retail subscriptions were leveraged, and most of the bank financing went to high-net-worth individuals and institutional buyers.
He expects most of the IPO proceeds to be invested locally by the PIF, given that most of subscription were internal.
Riyadh scaled back its original IPO plans, scrapping an international roadshow to focus on marketing Aramco to Saudi investors and Gulf Arab allies. It has remained silent on when or where it might list Aramco stock abroad. 


Food for thought as Aramco’s Amin Nasser hosts Davos

Updated 8 min 13 sec ago

Food for thought as Aramco’s Amin Nasser hosts Davos

  • The theme of the reception was “the art of the possible,” aiming to highlight Aramco’s huge investment in energy technology
  • Among the foreseen events were the release of audited reserves estimates showing Aramco — officially — as the world’s biggest oil company

DAVOS: Rapidly becoming a highlight of the hectic Davos calendar is the Saudi Aramco reception and dinner, held for the past two years now at the InterContinental Hotel on the outskirts of the Alpine resort.

The egg-shaped InterConti is one of the bigger and newer establishments here, very different in style from most of the other traditional Swiss hotels. It exudes corporate power and influence and is a fitting venue for the most valuable company in history to host friends, clients and would-be partners for a few informal hours.

On Wednesday, the hotel was virtually an extension of Riyadh. In addition to the Aramco event, there was also a big presence by the Saudi Arabian General Investment Authority (SAGIA), with its slogan “Saudi Arabia: Now Live” in prominent view in the bustling lobby.

The Aramco event — hosted of course by chief executive officer Amin Nasser — was a gathering of some of the most powerful people in the Kingdom, as well as a number of the great-and-good of the energy world and representatives of the global elite.

The Saudi Energy Minister Prince Abdul Aziz bin Salman chatted amiably with guests, none the worse for wear from the door-stepping he had got from the Western press earlier in the day, which had caused a storm of disapproval on Saudi domestic media. He had a few words for everyone.

Yasir Al-Rumayyan, governor of the Saudi Public Investment Fund and chairman of Armco, was in attendance too, enjoying the refreshments and canapes of the gathering.

The theme of the reception — held in the InterConti’s cavernous basement function hall — was “the art of the possible,” aiming to highlight Aramco’s huge investment in energy technology, its big global research and development commitment, and its awareness of climate-change issues. “We are more than just a petrol pump,” was the message.

One neat synergy between traditional Saudi life and modern technology was the story of Mohamed Amanullah, leader of Aramco’s Advanced Research Center, who devised a way of using discarded date seeds — suitably processed — as a filter in the oil-drilling process. “It shows heritage and sustainability in one place,” an Aramco aide explained.

The highlight of the soiree was an address from Nasser, who took the stage to thank guests for making the trek to the InterConti. He noted that Davos 2020 had the highest number ever of Saudi delegates.

“Last year was an exceptional year for Aramco, in a variety of areas; some of them planned, some not predicted,” he told the audience.

Among the foreseen events were the release of audited reserves estimates showing Aramco — officially — as the world’s biggest oil company; the record-breaking bond issue in spring; the finding by scientific experts that the Kingdom had the cleanest crude of any of the oil majors; and, of course, the biggest initial public offering in history last month and market recognition of the fact Aramco is the biggest listed company in the world.

Some unplanned events were also mentioned, notably the attacks on Aramco facilities last September that briefly halted most of the Kingdom’s oil industry, but which was overcome with rapid efficiency. The oil price spike was short lived.

“Our job is to fulfill the global need for affordable energy,” Nasser said, highlighting Aramco’s “responsibility and moral obligation” to help alleviate energy poverty in poorer countries, especially in sub-Saharan Africa.

Nasser finished with a pledge that Aramco’s hi-tech capabilities will be enhanced and expanded for the benefit of the world. “I am confident that we can use technology to remove carbon dioxide emissions and methane from the atmosphere,” he said.

That is a mission worthy of the biggest energy company on the planet and provided food for thought for the rest of the Davos evening.