Hard to ignore the crown jewel Aramco amid Saudi talk of privatisation

Even ignoring a possible Aramco listing, Saudi Arabia’s National Transformation Programme is expected this month to set out the prospect of a series of privatisations and public listings of the country’s state assets.

The Tadawul remains an overwhelmingly retail-dominated environment, with institutional investors accounting for just 13.7 per cent of share ownership. Faisal Al Nasser / Reuters

“We believe a decision will be made over the next few months. Personally I’m enthusiastic about this step. I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.”

And thus the frenzy began.

In an interview this month with The Economist, Saudi Arabia's deputy crown prince Mohammad bin Salman confirmed the government was examining plans for the public listing of the crown jewel, Saudi Aramco.

The listing of Aramco, whose value is estimated to be as much as US$2.5 trillion, could become the largest IPO in stock market history, dwarfing Alibaba’s $25 billion listing in September 2014.

Even ignoring a possible Aramco listing (if such a thing is possible), Saudi Arabia’s National Transformation Programme is expected this month to set out the prospect of a series of privatisations and public listings of the country’s state assets, as the country looks to the private sector in an attempt to wean itself off oil revenues.

“Privatising large parts of the state will help enhance and deepen the private sector’s involvement in the economy and enlarge its participation in the stock market,” said John Sfakianakis, a Riyadh-based economist.

“We’re not just talking Saudi Aramco, we’re talking about ports, airports and healthcare projects that will place the country’s economy on a more public-private partnership cycle rather than one that is heavily dependent on government spending. Saudi Arabia is rethinking itself and the direct beneficiary of that is its capital markets.”

The country’s stock market, the Tadawul, announced last month that it would launch its own public share offering in 2018.

Saudi Arabia’s Grain Silos and Flour Mills Organisation, which processes 3.3 million tonnes of wheat per year for domestic consumption, is in discussion with advisers, including Deutsche Bank, HSBC Holdings and Credit Suisse, on how to privatise its operations, according to Bloomberg.

But while a series of large state entities are predicted to list locally, questions remain about the stock market’s ability to attract investment from financial institutions, both within and outside the kingdom.

The Tadawul remains an overwhelmingly retail-dominated environment, with institutional investors accounting for just 13.7 per cent of share ownership as of last week.

Eight months on from the opening up of the market to qualified foreign investors, non-Saudi share ownership stands at just 4.6 per cent. The reticence of institutional and foreign investors comes as little surprise given the market’s recent performance.

Bloomberg lists the Tadawul as the second worst performing stock market worldwide for the year to date, shedding 20 per cent of its value since the start of the year, as oil prices continue to fall to record lows.

“No one was expecting QFIs to come in and immediately inject massive quantities of money in the short term,” said Mr Sfakianakis. “If you look at what happened with markets like India and China, it always takes time for international investors to begin to tap new markets.”

However he admitted that despite attractive valuations for Saudi stocks, institutional investors are unlikely to invest heavily in the market until oil prices show signs of stability.

“The oil story is the leading indicator for QFIs and other investors who are looking at Saudi and the wider region right now,” he said.

“And right now they’re opting to stay on the sidelines.”

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