Global Stocks Could Be Transformed By The $1.5 Trillion Aramco IPO

The global stock market is expected to be shaken up by the sale of IPO of the government-owned Saudi Arabian Oil Co. Aramco this year, according to money managers in the Middle East. The company is slated to offer the largest IPO ever that would give a valuation of about $1.5 trillion to the world’s biggest company.

“People focus on Aramco as being the key thing,” said Salman Bajwa, chief executive officer of Dubai-based Emirates NBD Asset Management Ltd., which has $4.8 billion of assets. “In our eyes, it is just one of the several major changes taking place. We have landmark reforms going in the social, economic and markets space. The Aramco IPO will be the confirmation that one phase of structural reforms in the markets space has been successfully completed” because “there are going to be other IPOs, many of state-owned entities,” Bajwa said.

According to data available in the public domain and compiled by Bloomberg, the ultimate market capitalization that would be accorded to Aramco would be almost double that of Apple Inc., four times larger than Exxon Mobil Co. and at least one-fifth of the value of the MSCI Emerging Markets Index of $5.8 trillion.

There are also plans n selling of stakes of state owned entities in the stock exchange, football clubs and flour mills for the creation of the biggest sovereign wealth fund by Saudi Arabia. The Chief Executive Officer of Aramco, Amin Nasser, said last week that the company is all set to issue its first ever IPO later this year.

“Saudi Arabia would raise $75 billion with a sale of 5 percent in Aramco with the IPO, assuming a $1.5 trillion valuation, which is earmarked to be used to implement planned reforms and ease the economy’s reliance on oil”, said Salih Yilmaz, an analyst at Bloomberg Intelligence in London. “This is vital for the kingdom especially amid concerns of declining oil demand in the long term. For the global oil markets, the IPO may provide more transparency, given an independent audit of proven reserves would likely be required.”

Saudi Arabia also initiated steps to create an easier framework to allow anyone to sell and purchase shares of Aramco which is part of the Kingdom’s plans to diversify its economy and reduce its complete dependence on oil. Saudi Arabia was a financial backwater earlier. Shares worth less than 5 per cent of those available in the financial capital of the Mideast’s largest economy – Riyadh, are owned by foreigners.

The IPO will take place “when the time is right”, said Saudi Oil Minister Khalid Al-Falih on Wednesday at the World Economic Forum in Davos, Switzerland.

“We hope that 2018 will be the right time but ultimately we have to make sure the market is ready,” he said, when asked if he was pointing to a delay.

(Adapted from Bloomberg.com)

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