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Saudi Arabia's Latest Trick To Boost Aramco Investment

Saudi Arabia is doubling the leverage limits for loans that banks will extend to domestic retail investors who want to buy shares in the Kingdom’s oil giant Aramco in what would be the world’s largest initial public offering (IPO) ever.

The central bank, the Saudi Arabian Monetary Authority (SAMA), has told banks that they can lend money to retail customers at a 2-to-1 ratio for every riyal they will invest in Saudi Aramco, compared to average leverage ratio limit for loans of 1-to-1, the chief executive officer of Samba Financial Group, Rania Nashar, told the Al Arabiya news outlet.

The move from the monetary authority in Saudi Arabia is aimed at ensuring that more retail customers will buy shares in the oil giant Aramco.  

Banks are also allowed to extend loans to corporate and institutional investors for buying Aramco’s shares at higher leverage ratios, depending on each corporate customer’s creditworthiness, Nashar told Al Arabiya.

Saudi Arabia will be offering up to 0.5 percent in Aramco to retail investors, while in total the Kingdom plans to list 1.5 percent of the world’s biggest oil company on the Saudi stock exchange, the Tadawul.

On Sunday, Aramco set an indicative price range of 30-32 Saudi riyals, (US$8-8.52), in its long-awaited initial public offering, which would give the company a total value of some US$1.7 trillion.

The Final Offer Price will be determined at the end of the book-building period, which began on Sunday. Individual Investors will subscribe shares based on a price of 32 riyals, which is the top end of the price range, Aramco said.

Saudi Arabia relies on retail investors for part of Aramco’s IPO, while a larger part will be sold to domestic institutional investors and a small group of international investors with permission to invest in Aramco.

Days before Aramco announced an indicative price range for the offering, a Bloomberg News poll of money managers showed that the Saudi oil giant is worth no more than US$1.5 trillion. Neither money managers, nor the indicative price range, value the company at as much as the coveted US$2 trillion valuation, on which Saudi Crown Prince Mohammed bin Salman has insisted since he announced plans for Aramco to go public more than three years ago.

By Tsvetana Paraskova for Oilprice.com

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