Analyst sees risk in IPO listing only on domestic market

DUBAI: Saudi stocks sagged two percent yesterday after the announcement that the blockbuster listing of state energy firm Aramco was headed its way, as analysts warned it risked overwhelming the local bourse. After years of repeated delays, Aramco yesterday announced its intention to float an unspecified percentage of its shares on the Tadawul stock market, the region's biggest capital market.

The state-owned company however said there was no decision yet on the second part of the IPO to list on an international stock market, raising doubts that this much-anticipated step will ever happen.
The local bourse lost 1.99 percent to 7,590.33 points during the session. Ellen Wald, author of "Saudi Inc.", said that listing on the domestic market without any plans for an international offering was risky because it could "completely overweight" the local market. "If oil prices drop or Aramco stock falls, it is such a large part of Tadawul, it could bring the entire stock market down," she warned.

The Saudi stock market is the largest bourse in the Middle East and North Africa with a capitalization of $500 billion, and although it has undergone key reforms in the past several years, more regulatory work is still needed. If Saudi Arabia decides to sell two percent of the company, it could generate close to $40 billion, a huge amount that would impact liquidity levels in a country that has been facing sharp declines in oil revenues.

'Coercion'
The richest Saudi families, many of whom had members detained in Riyadh's Ritz-Carlton hotel during a months-long corruption crackdown in 2017, have been pressed to commit large sums, Bloomberg News has reported. The Tadawul All-Shares Index fell 4.0 percent in October as investors opted to sell their holdings to generate the necessary cash for the Aramco IPO. TASI is now 1.0 percent down on last year's close.
"Pressuring rich Saudis, many of whom were imprisoned at the Ritz, to invest in the Aramco IPO and to hold on to the shares is basically coercion," Wald said. The giant listing could end up taking money out of the Saudi economy that could be used to diversify it in more fundamental ways, analysts say.

"The IPO could cause a setback that will vacate a lot of money out of the other industries," said Samir Madani, co-founder of website Tanker Trackers, an oil shipping monitoring website.

"If Saudi citizens take on large loans in order to buy overpriced shares, they could be stuck with big piles of mortgage debt in the event of a market crash." Tadawul has also eased conditions for foreigners to enter the market, which won boost this year when it was included in the MSCI Emerging Markets Index-a move which typically spurs foreign investment inflows.

However, despite introducing a number of reforms the kingdom has struggled to attract the funds it needs to remodel its economy. The Riyadh bourse said it was ready and able to deal with such a huge share offering.

"We are proud that Aramco has selected Tadawul as the venue for the intended listing of its shares. Tadawul and its infrastructure are ready to receive this historical listing," CEO Khaled Al-Hussan said on Twitter. "Saudi Aramco's selection of Tadawul will mark a major milestone in Saudi Capital Market's journey and bolster our position among international stock exchanges." - AFP