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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Legal Risks Jeopardize World's Largest IPO

Legal risks and rising oil prices have prompted Saudi Arabia to scale back the IPO plan for its oil giant Aramco, whose shares will be floated only on the Saudi stock market in 2019, while the government will review at a later stage if an international listing is worth it, The Wall Street Journal reports, citing government officials and other sources close to the matter.

According to the report, the decision to scale back the IPO plan has stemmed partly from legal risks about listing on an international stock exchange and partly from the increased oil prices in recent months that have diminished the need to stage a very large initial public offering.

At Saudi Arabia’s targeted valuation of US$2 trillion, listing 5 percent of Aramco on one or more international markets as well as on the domestic Tadawul stock exchange was expected to raise US$100 billion, making it the world’s biggest ever IPO.

Saudi Crown Prince Mohammed bin Salman, who oversees the Aramco listing, “has become resigned to the idea that the legal risks of a U.S. listing could be insurmountable,” The Wall Street Journal reports.

Earlier this month, Saudi Energy Minister Khalid al-Falih said that Saudi Arabia was seriously concerned that it ran the risk of potential litigation if it were to pick the New York Stock Exchange for the international listing of Aramco.

Two weeks ago, al-Falih also hinted that the H2 2018 target date for Aramco’s IPO could slip into next year, calling the targeted period for the listing an “artificial deadline”.

Saudi Arabia has also warned British government officials that the listing could be delayed until 2019, and an international IPO could happen even later, the Financial Times reported last week.

Now, according to the Wall Street Journal, the Saudis will be taking more time to consider if an international listing would be worth doing at all.

One of the biggest concerns about a Saudi-only listing could be the lack of sufficient liquidity due to the smaller size of the Tadawul stock exchange, Amy Myers Jaffe and Jareer Elass wrote in an article on the Council on Foreign Relations published on Monday.

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The Saudi stock market is small compared to the major international exchanges, with a total market capitalization of some US$470 billion and 171 listed companies, compared to the NYSE, for example, whose market capitalization is US$21 trillion with more than 2,000 listed companies.
There is concern that the Saudi stock exchange can’t absorb the Aramco shares and that such a large sale could create too much volatility when investors sell other company shares to free up capital to buy up Aramco stock, Jaffe and Elass argue.

By Tsvetana Paraskova for Oilprice.com

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