Saudi Aramco IPO will boost kingdom's financial markets says Fitch exec

Indicative pricing for IPO shows the company could be valued at $1.6tn-$1.7tn

Saudi Aramco’s initial public offering is expected to provide a fillip to capital markets in Saudi Arabia, a senior Fitch Ratings executive said on Monday.

The state-owned oil giant announced an indicative pricing range for its offer on Sunday, stating that a 1.5 per cent stake in the company will be offered to retail and institutional investors at a range of between 30 and 32 Saudi riyals per share. About three billion shares will be offered, suggesting an indicative valuation of between $1.6 trillion and $1.7tn (Dh5.9tn to Dh6.2tn) when the offer is launched on the benchmark Tadawul exchange, which could take place next month.

“It is a big boost to financial markets in Saudi Arabia and important for the development of the equity markets,” said James McCormack, managing director and global head of Fitch Ratings' sovereign and supranational group.

“When we think it about from the Saudi government’s perspective and Saudi government’s balance sheet, does it make any difference to the ratings perspective? The answer is not really,” he said.

“The government simply switched one illiquid asset to another illiquid asset so it doesn’t really change the dynamics but it is important for the development of equity markets in the kingdom and getting part of that into the equity market is an important achievement on that part of Saudi government.”

Rival ratings agency S&P Global said in a note published at the weekend that the oil firm's IPO could help the government to "strengthen its net asset position".

"If subsequently effectively deployed, the funds raised could be used to support longer-term economic growth in Saudi Arabia," S&P Global said.

The debut of the world's most profitable company on the Saudi stock exchange follows on from Tadawul's upgrade to emerging market status by index compiler MSCI earlier this year — both of which have been "met by much excitement from the global investment community", according to the head of asset management firm Invesco's Middle East and Africa institutional business, Zainab Kufaishi.

"We watch with great interest in anticipation of greater depth and liquidity to the Kingdom’s capital markets and overall diversification of its economy beyond hydrocarbons," she said.

Updated: November 24, 2019, 6:23 AM