Saudi Arabia’s stock exchange expects its market capitalisation to more than double by 2022, climbing to above US$1 trillion, helped by a potential share float of Saudi Aramco, leveraging the government’s privatisation programme and bringing domestic and regional companies seeking financing to the exchange, its chief executive said.
"We hope so. Yes," Khalid Al Hussan said of the possible jump for Tadawul, as the exchange is known, from its current $440 billion market capitalisation level to beyond $1tn in the next five years. "It's not easy. I can't say it's going to be easy. It comes with challenges," he said in an exclusive interview with The National in Riyadh.
Tadawul is the biggest equities exchange in the Arab world and is among the top 26 largest capitalised bourses globally. It opened doors to foreign investors in 2015 and has gone through radical transformation operationally and on the regulatory front. The changes make it a potential candidate for inclusion in the MSCI Emerging Market Index, a gauge tracked by investors with trillions of assets under management.
The bourse has immense potential for growth as it continues to work with Saudi companies for prospective initial public offerings (IPOs), while also pursuing entities from across the GCC.
“We are creating the right incentives for private and government sector companies to go public and these incentives once they are announced, we think will play a good role in increasing the market capitalisation. [The] Aramco IPO will play a role in changing the market capitalisation [as well],” he said.
“I think the commitment and the motivation today and the potential for this market to grow is tremendous with the help of several initiatives that we are taking, whether its [the] Aramco IPO, the incentives programme, [or] the [Nomu] SME market.”
Privatisation lies at the heart of the economic overhaul of Saudi Arabia which still relies heavily on the sale of hydrocarbons for revenues. Riyadh is encouraging foreign investments in both government and private sector companies. The kingdom plans next year to part-privatise Saudi Aramco, the world’s top oil producer, through an IPO, probably the biggest-ever share float in history. With a potential valuation of $2tn, the sale of less than a five per cent sake of Aramco may generate $100bn for the government.
Analysts have said that the enormity of the Aramco IPO could potentially skew the market balance. Mr Al Hussan however argued it will not be problematic for the exchange.
“There have been many big IPOs on many exchanges and there are ways of handling this and capping the weights of big [company] IPOs on the index to be fair about the market movements,” he said. “We are fully aware of what needs to be done.”
A lot relies on how Aramco decides to structure the deal, but Tadawul as an exchange was “ready and committed to make this a success.”
“Our aspiration for Tadawul, as the main exchange of the region, [is] to be the exclusive venue for Aramco. We [have] worked hard and we continue to work hard to ensure that we have both regulatory and operational infrastructures to make this possible,” he said. The bourse understands that the listing of Aramco on Tadawul can’t be “taken for granted,” he added.
Apart from Aramco, Mr Al Hussan said he expects a number of government-owned companies to seek a listing on Tadawul, as privatisation gains momentum in the kingdom, the region’s biggest economy.
“On the main market, we are working with many entities,” he said, adding that companies however were at different stages of IPO readiness. The exchange, which introduced Nomu, a parallel platform for small and medium-sized companies earlier this year, is also actively engaging with smaller firm to bring them to the market.
Tadawul also plans to start allowing companies based in the Arabian Gulf region to start listing their shares on the bourse from next year.
“Everyone is watching the developments that are taking place [at Tadawul] and I think we are adding an element to the market … … adding GCC listing to our platform,” he said. “That will also increase the [IPO] pipeline and that will strengthen ……. both the main and secondary markets.”