Saudi Securities Regulator Asked to Study the Impact of Aramco IPO on Local Market

The Saudi securities regulator has been asked by an advisory council to Saudi Arabia’s government to study the impact of listing Saudi Aramco on the local stock exchange in the midst of concern that a huge initial public offering may possibly damage the market.

The state news agency SPA reported that the Capital Market Authority (CMA) have also been requested by the Shura Council’s fiscal committee to make certain the stock market’s liquidity would not become concentrated in the massive oil company alone.

The Kingdom’s government said it plans to sell off around 5 percent of Aramco, with the hope of raising the sum of $100 billion or more. This would likely be the biggest Initial Public Offering (IPO) in the world. The sale is expected to happen in the second half of this year.

The kingdom’s officials said that Aramco may be listed in one or more foreign markets for instance London, New York, and Hong Kong as well as Riyadh, which would reduce the strain on the Saudi market and boost the company’s global profile.

Such a move would likely lead to the selling of several shares to strategic foreign investors overseas. Saudi financial experts are concerned the IPO could be too massive for the local market to absorb.

Nevertheless after over a year of considerations, a decision on a foreign market has not been announced yet and certain officials have suggested that Aramco might list in Riyadh alone.

The market has a capitalization of around $470 Billion. This means the local market could be destabilized by Aramco’s listing if supplementary stocks get sold to raise funds for investment in the oil giant.

Khalid Al-Hussan, the chief executive for the Saudi exchange told Reuters that Riyadh is expected to be the only venue for the Aramco listing and he was sure it could handle all of the Initial Public Offering (IPO).

When contacted by Reuters, the Shura Council and the Capital Market Authority had no immediate comment. A couple of businessmen expressed concern at a meeting at the Council of Saudi Chambers, a national business association.

One of them said that historically when a considerable large company is going into the market, the main concern is mainly about market dynamics and activity.

The head of research at Al-Rajhi Capital, Mazen Al-Sudairi said that listing Riyadh could hurt the economy of the Kingdom by sucking in funds from somewhere else. He added that listing one percent of Aramco locally would absorb more than the entire domestic borrowing of the government last year, which stood at $14.3 billion.

Furthermore, the relationship of the Saudi stock index to oil prices would rise from 50 percent to nearly 100 percent, making the market a play on unstable oil prices instead of a diversified Saudi economy, he explained.

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