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While it is getting ready to host the initial public offering of Saudi Aramco in what could be the world’s biggest IPO in history, Saudi Arabia’s stock exchange is looking to lure more foreign investors and raise foreign ownership of equities to 25 percent in two years, from 4 percent currently, chief executive Khalid Al Hussan told Bloomberg in an interview published on Tuesday.
A present, the Saudi stock market, Tadawul, has some 120 registered Qualified Foreign Investors (QFI), and the exchange is currently reviewing 180 more applications for QFI, Al Hussan told Bloomberg.
“It will be great if one day our 49 percent foreign-investor limit is challenged but ideally, we will be satisfied if in the next two years or more, we have about 20 to 25 percent foreign ownership in our markets,” said Al Hussan. “We are telling global investors that our markets are open and are consistently encouraging them to invest with us,” the stock market’s chief executive noted.
The charm offensive of the Saudi exchange comes as Tadawul is preparing to host the IPO of Saudi Arabia’s oil giant Aramco, which is slated for the second half of 2018. Although the Saudis have not yet announced the international venue for Aramco’s listing, the domestic stock market listing is one of the certainties in this highly anticipated IPO. Saudi officials claim that Aramco could be worth US$2 trillion, and listing 5 percent of it could fetch US$100 billion if that valuation stands.
The Saudi stock market doesn’t see liquidity concerns from Aramco’s listing, Al Hussan told Bloomberg.
The Saudi bourse also expects to be included in the MSCI Emerging Market Index. In June 2017, the Saudi stock exchange was included in the Emerging Market Index Watch List after it had made a series of market reforms, including enabling foreign participation in Saudi IPOs.
“Potential inclusion in MSCI’s Emerging Market Index signals to international investors that the country’s capital market has attained greater maturity in terms of efficiency, governance and regulatory framework,” Sarah Al Suhaimi, Chairperson of Tadawul, said in June last year.
Saudi Arabia opened its market to international investors in June 2015 through the QFI program.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
While the Saudi stock market will welcome more foreign investors, Saudi Aramco will not be one of the companies listed in Tadawul. First it will overwhelm Tadawul creating liquidity concerns; second, Saudi Arabia is no longer financially in need of the IPO; third Saudi vauation of the IPO is far bigger than Wall Street and other financial houses; and fourth, there are many economic and geopolitical issues involved with the IPO.
The Aramco IPO was proposed as part of Saudi Arabia’s Vision 2030 with the objective of securing an estimated $100 bn from the sale of 5% of Saudi Aramco in support of Saudi diversification of the economy.
The Saudi anti-corruption drive has already netted more than $106 bn according to Saudi official sources. This is bigger than the estimated value of the IPO. Moreover, the Saudi government could get $100 bn from a total elimination of subsidies and an estimated $72 bn peaceful settlement in Yemen.
The recent rise in oil prices is already starting to repair the damage inflicted on the Saudi economy by the oil price crash in 2014. So financially, Saudi Arabia has no need for the IPO.
Saudi Aramco is the jewel in the crown in the Saudi oil industry. Keeping it totally under Saudi ownership enables Saudi decision-makers to decide oil policy and the freedom of global investments without any foreign interference and without any risk of litigation by the United States.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London