How Saudi Aramco IPO Could Im­pact Global Mar­kets Highly-an­tic­i­pated share sale has be­come em­blem­atic of Saudi’s push to trans­form its econ­omy and open its doors to more foreign cap­i­tal

The Economic Times - - Finance & Commodities -

New York: The ex­act dol­lar value of Saudi Aramco may be up for de­bate, but the list­ing of the world’s big­gest com­pany will be price­less for the king­dom’s mar­kets.

The highly-an­tic­i­pated share sale has be­come em­blem­atic of Saudi Ara­bia’s push to trans­form its econ­omy and open its doors to more foreign cap­i­tal. What­ever you think of the valu­a­tions in­volved — be it the $2 tril­lion once sug­gested by Crown Prince Mohammed bin Sal­man or the $400 bil­lion es­ti­mate said to have been made by con­sul­tant Wood Macken­zie — the of­fer­ing has the po­ten­tial to make waves in mar­kets from Tokyo to Toronto.

Aramco’s “par­tial pri­vati­sa­tion will bring much at­ten­tion on Saudi Ara­bia,” said Michael Bol­liger, the Zurich-based head of emerg­ing-mar­ket as­set al­lo­ca­tion at UBS Wealth Man­age­ment, which has clients worth $2.1 tril­lion. Here’s a look at how Aramco’s list­ing may im­pact mar­kets:

STOCK MAR­KETS

Saudi Ara­bia’s do­mes­tic stock ex­change, known as the Tadawul, has a to­tal mar­ket cap­i­tal­i­sa­tion of about $440 bil­lion, mak­ing it the largest in the Mid­dle East. A That would crown it as the big­gest list­ing ever but also mean ab­sorp­tion of the whole deal on the lo­cal ex­change would be near im­pos­si­ble.

STOCK IN­DEXES

The largest IPO in his­tory will have an im­pact even be­yond where it’s listed, rip­pling through the bench­mark stock gauges tracked by in­vestors glob­ally. Saudi Ara­bia ex­pects MSCI Emerg­ing Mar­kets In­dex in­clu­sion in the near fu­ture, the ex­change’s chief ex­ec­u­tive of­fi­cer said on Sun­day. As­sum­ing a 5% float, Aramco alone would ac­count for about 2.4% of the gauge, ac­cord­ing to es­ti­mates by Mo­hamad Al Hajj, a Dubai-based eq­uity strate­gist.

OIL PRICES

The key to Aramco’s IPO price — and the suc­cess of its of­fer­ing— will be the value of crude. Even with the global shift to cleaner fu­els, oil is ex­pected to con­tinue pro­vid­ing about a third of world en­ergy for the next two decades.

CUR­REN­CIES

Foreign re­serves held by the Saudi Mon­e­tary Agency have dropped $200 bil­lion since Au­gust 2014 to $528 bil­lion at the end of Dec, as the king­dom used sav­ings to shore up pub­lic fi­nances.

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