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Saudi Arabia’s stock exchange Tadawul is experiencing an influx of foreign funds and expects even more in the future, confident that this will enable the bourse to accommodate the listing of state energy giant Aramco without any liquidity problems, Tadawul’s head Khalid al-Hussan told Reuters.
There has been worry both in Saudi Arabia and abroad that Tadawul will not be able to take in the placement of Aramco shares without suffering a major strain: the local market’s total capitalization is just US$500 billion and Riyadh eyes Aramco IPO proceeds of US$100 billion.
Even more conservative estimates of what Aramco’s proceeds might look like—around US$50 billion—have analysts worried the local bourse might not be able to accommodate it without becoming illiquid.
Al-Hussan, however, is optimistic the bourse will be able to withstand the deal. “Foreign investors are putting in more money — every day we have improved liquidity capacity,” he said in an interview, adding that Tadawul is technically capable of handling the Aramco listing on its own, without a foreign exchange. This has become the most likely scenario judging by recent comments from Riyadh.
The influx of foreign funds follows the upgrading of Saudi Arabia to emerging market status by FTSE Russell. Reuters notes that MSCI is also expected to upgrade the Kingdom to emerging market status later this year, which should stimulate more foreign investment in the country.
What’s more, Riyadh has this time done its homework: the last major listing of a Saudi company was that of the National Commercial Bank. That one brought in barely US$6 billion, but at the time, foreign investors were not allowed to take direct part in the offering.
Now, there are new rules because so much depends on the Aramco IPO: pretty much the future of the local economy in a less oil-dependent environment hinges on the proceeds from that listing.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
My opinion is based on the following factors: first, listing Saudi Aramco on the Saudi stock market, Tadawul, will overwhelm it creating liquidity concerns; second, Saudi Arabia is no longer financially in need of the IPO.
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.
In fact, S&P Global Ratings raised on Friday Saudi Arabia's credit rating to a stable outlook on the expectation that economic growth will accelerate in 2018 as it continues to boost spending.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London