It’s finally happening: after months of delays and mixed signals, Saudi Arabia is in the final stage of preparing for the launch of what most see as the biggest listing in history. This biggest listing in history, however, may turn out to be confined to the Kingdom of Saudi Arabia alone.
Aramco was clear in its prospectus that it will target mostly Saudi investors, both institutional and retail. According to media reports, wealthy Saudi families were being bullied into becoming anchor investors in the company. For retail investors, Riyadh this month doubled the leverage limits for loans to motivate more people to become shareholders in the world’s largest oil company. The one thing Aramco and the Saudi government have not done is advertise the listing to foreign investors.
For all the hype surrounding the listing in the early days, when the $2-trillion valuation was not yet a subject of dispute from non-Saudi institutions and oil prices were on an extended rally, now it seems Riyadh has chosen to focus on home investors.
Some institutional investors—from a few select countries, most in the Gulf—will also be welcome to buy shares in Aramco in early December. However, due to the lukewarm reaction of international investors to the IPO, Aramco seems to have decided not to prioritize them as buyers. And rightly so, as the only way international investors can make money from Aramco shares is as a short-term strategy, according to energy historian and Saudi expert Ellen R. Wald.
In a recent article for Forbes, Wald laid out a scenario where Aramco’s shares jump following the listing because of all the incentivization Riyadh is carrying out. In addition to this incentivization, the owner of Aramco has instituted a six-month holding period for anyone in country who buys Aramco shares—but this restriction on selling shares only after 6 months doesn’t seem to apply to international investors.
So, says Wald, what international investors can do to make some money from the biggest listing in history is to sell their shares before the six-month holding period expires, which is when Saudi investors will start selling their shares.
Of course, as Wald points out, nothing is certain. The fact that the shares will only be listed on the Tadawul exchange and that the dividend Aramco promises its future investors will only be paid in Saudi rials don’t sound particularly tempting for investors who would rather trade on a bigger exchange and receive their dividends in a more popular currency. What’s more, it is far from certain that Aramco’s shares will climb up high enough to make investors think it might be worth buying some.
One might argue that the market conditions are not optimal for a listing of the company that holds the most crude oil reserves in the world. The threat of oversupply is hanging over prices and worries about global economic growth are adding to the weight. Yet the listing had to take place sooner or later, especially with all the noise around it. Riyadh is openly betting on local investors for the initial 0.5-percent share package it will offer on the stock exchange. Perhaps it has something sweet in store for international investors for the rest of the 5 percent it originally planned to list. For now, however, international investors’ overall lack of interest in the listing seems to be justified.
By Irina Slav for Oilprice.com
