Saudis weigh sole listing of Saudi Aramco shares on Riyadh stock exchange

A sole listing on Tadawul would free the Saudi government from complying with foreign regulations.
Sunday 18/02/2018
An engineer shows visitors a model of Saudi Aramco’s maritime yard in Ras al-Khair.  				    (Reuters)
In the spotlight. An engineer shows visitors a model of Saudi Aramco’s maritime yard in Ras al-Khair. (Reuters)

WASHINGTON - As rumours emerge over Riyadh’s process of choosing one or more foreign bourses for the listing of shares in the impending initial public offering (IPO) of state oil giant Saudi Aramco, the role of the Saudi stock exchange — Tadawul — in the limited sale is increasingly in the spotlight.

The Saudi exchange has been preparing for its part in the IPO and its officials have suggested that Tadawul could be the sole bourse for the listing. At the same time, the kingdom’s securities regulator has been tasked with examining the potential effects that a listing of as much as 5% of Saudi Aramco could have on the Saudi stock market.

The government of Saudi King Salman bin Abdulaziz Al Saud has repeatedly insisted that Tadawul would be an important component of the Saudi Aramco IPO, though the question remains just how big a role it will play.

Will it kick-start the process with shares listed on Tadawul at the end of 2018 and on one or more foreign bourses in 2019? Will Tadawul play a limited part in conjunction with one or more foreign exchanges in a coordinated IPO effort?

There is speculation that the Saudi government could avoid foreign exchanges for a smaller Tadawul listing combined with private placement sales to key international investors.

Reports indicate that the Saudi Aramco IPO is being delayed largely over the Saudi regime’s quandary in choosing one or more foreign exchanges but Tadawul officials have been making the pitch for the Riyadh exchange to be the only bourse for the listing.

Tadawul CEO Khalid al-Hussan in October said: “Our aspiration for Tadawul, as the main exchange in the region, is to be the exclusive venue for Aramco… We are doing what [it] takes to make sure Aramco is listed here only.”

When asked on February 8 whether the Saudi exchange was prepared to accommodate the IPO on its own, Tadawul Chairwoman Sarah al-Suhaimi said: “We are ready and waiting for any decision the company might make, whether that’s for a dual listing with another exchange or a local listing. We are prepared to do whatever is decided.”

Suhaimi was named Tadawul’s board chairwoman in February 2017 and is also the chief executive of National Commercial Bank subsidiary NCB Capital. She holds the distinction of being the first Saudi woman to lead a major government institution in the kingdom.

The primary concern about Tadawul is that the Saudi Aramco IPO could be too large a listing for the local stock market to absorb. Saudi Crown Prince Mohammed bin Salman bin Abdulaziz, chief architect of Saudi Vision 2030, estimated that the IPO will value Saudi Aramco at a minimum of $2 trillion and could generate proceeds of as much as $100 billion.

Tadawul is significantly smaller than foreign bourses, with a market capitalisation of $470 billion and 171 listed companies. The New York Stock Exchange has a market capitalisation of more than $21 trillion and more than 2,000 listed companies.

By including one or more foreign bourses into the IPO equation, the Saudi government would enjoy a heightened global profile for Saudi Aramco and a larger pool of investors, while preventing the potential upheaval that a sole listing of up to 5% of Saudi Aramco on Tadawul would have on the local market.

It is not surprising that the fiscal committee of Saudi Arabia’s Shura Council in January called for the kingdom’s securities regulations agency, Capital Market Authority (CMA), to study the effects of listing shares of the Saudi oil conglomerate on Tadawul.

The committee called on CMA to ensure that the Saudi stock market’s liquidity would not become concentrated in Saudi Aramco amid worries that the exchange could become destabilised should other stocks be rapidly sold to raise funds for investing in Saudi Aramco.

A sole listing on Tadawul would free the Saudi government from complying with foreign regulations that would force Saudi Aramco to be more transparent in its operations and finances but listing on the Saudi exchange is not without risks. Tadawul is not immune to volatility in response to domestic news, as demonstrated in November when reports of the arrests of several princes and current and former cabinet members in a government corruption investigation prompted the exchange’s main index, the Tadawul All-Share Index (TASI), to fall 2.2%, although it rebounded into positive territory that same day.

Saudis with long memories may be skittish about making a large play in the Saudi Aramco IPO, recalling the infamous stock market collapse in the kingdom in 2006 that saw by year-end the TASI shed about 65% of its value and the exchange’s market capitalisation halved to about $327 billion.

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