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Saudi Aramco Clears Another IPO Hurdle

Refinery

Saudi Arabia has cleared another hurdle on its way to successfully launching Aramco’s initial public offering after MSCI granted it emerging market status in its latest review, Morningstar reports. MSCI’s managing director Sebastien Lieblich was quoted as saying "International investors were impressed by the speed of change in the accessibility of the Saudi Arabian equity market and the level of commitment that the Capital Market Authority and the Saudi Stock Exchange have demonstrated".

Lieblich went on to say that investors will now watch whether the current privatization drive in the Kingdom continues to offer lucrative investment opportunities.

Undoubtedly, the cherry on the Saudi privatization pie will be the successful IPO of Aramco, the world’s largest oil company by reserves. Initially scheduled for the second half of 2018, the flotation, which many have called the biggest IPO in history, has been delayed until early 2019.

There has been concern about whether the Saudi exchange Tadawul will be able to handle the addition of Aramco: petrochemical stocks already represent a quarter of Tadawul’s equity index and with Aramco’s shares added, the share of the oil and petrochemicals industry would become disproportionately large on the exchange, dampening investor appetite.

One of the suggested solutions to this problem could create yet more difficulties though: if Aramco’s natural dominance on the Tadawul index is artificially limited in order to curb the presence of industry stocks to a more palatable level, some investors interested in buying Tadawul index options because of Aramco’s presence on it might think twice before doing it.

There are also uncertainties around the international listing of Aramco. London, New York, and Hong Kong are on the short list of Riyadh, but the latest update in this respect has been discouraging. The international listing of the oil giant has been shelved for the time being. That’s bad news for Aramco, since a dual listing would have distributed the burden of having such a huge company on your index between two exchanges.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on June 21 2018 said:
    Since the beginning of this year I have been saying that the Saudi government will quietly withdraw the IPO of Saudi Aramco altogether as it no longer needs the money from the sale.

    Saudi Arabia withdrew the IPO from international listing because of problems with valuations and American litigation and it will soon withdraw it from listing on the Saudi exchange, Tadawul, because it could overwhelm it and also create liquidity problems.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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