Since Aramco announced its intention to offer up to 5 per cent via an initial public offer (IPO), major financial markets have been welcoming the move to what will be the world’s largest ever stock market listing. The markets are impatiently waiting for Aramco’s next step and are even competing to win a listing post-IPO to gain significance.
Besides a definite listing on the Saudi stock exchange, Nasdaq in the US keeps on sending delegation after delegation to induce the company’s management to conduct part of the listing there, while Chinese officials are trying to attract Aramco to do so in Shanghai or Hong Kong stock exchange. This topic has been raised during King Salman Bin Abdul Aziz Al Saud’s visit to China last month.
The London Stock Exchange has also changed and amended some of its IPO systems that allows Aramco to list its shares. It is widely known that a company can list its shares on more than one stock market but that depends on two key factors.
The first is to what extent the management of the listing company emphasises the importance of listing in a certain market. The second factor relates to the relevance of a certain financial market to the process of listing, especially as the size of the Aramco’s first offering will range from $160 billion to $200 billion on the assumption that the assets are between $3.2 trillion to $3.8 trillion.
The Aramco IPO can be likened to Alibaba’s $25 billion IPO, where it was then the largest IPO ever and witnessed an impressive response from investors.
In fact, such a move will bring about a paradigm shift not only at Aramco but also in the entire Saudi economy as these funds will be injected to advance non-oil sectors such as mining, where Saudi Arabia announced the start of gold production by 180,000 ounces, keeping in mind that there are significant gold reserves that can be developed.
Aramco has other IPO options through its subsidiaries, especially in the petrochemical sector where it has more than $100 billion. It is as yet unknown how Aramco will deal with that.
Indeed, having access to major financial markets for Gulf companies, especially industrial and oil ones, is of exceptional importance to the GCC states and their growing role in the global economy. It will boost confidence in their economies to be more influential, gain a global character and become a hub for foreign investments that recognise no boundaries, and the transformation of companies into huge global conglomerates.
It remains highly likely that other Gulf oil and non-oil companies will take similar steps, especially if the Aramco IPO achieves the expected results of attracting significant capital from institutional funds and investors.
With more such IPOs, the Gulf’s oil industry will go through a radical change that has yet to happen since start of oil production 80 years ago. National oil companies could transform into joint stock companies, which thereby increases their economic leverage.
This will materialise in a transformation in the structure of Gulf economies and provide extra funds that will help with the diversification.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.