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
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:
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.
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.
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.
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.