Saudi Aramco listing to revive Gulf IPO activity after weak quarter: PwC

Reem Abdellatif, Al Arabiya English

Saudi Aramco’s upcoming initial public offering (IPO) on the Saudi Stock Exchange (Tadawul) is expected to revive IPO activity, possibly encouraging a greater number of companies to list across the Gulf Cooperation Council (GCC) after a quiet third quarter, PwC said in a report on Wednesday.

“We anticipate the coming quarter to be significantly more active with the recent announcement of Saudi Aramco’s record breaking flotation on Tadawul, along with many other companies which have expressed their intention to list in 2019,” said Steve Drake, Partner, Capital Markets, PwC Middle East.

Saudi Aramco plans to float two percent on the domestic market as part of its first phase of going public, sources told Al Arabiya. On November 3, Aramco reported a net income of $68 billion for the nine months ended September 30. The company’s revenues and other income related to sales stood at $244 billion for the same period.

Activity across equity markets in the GCC remained quiet during the third quarter of 2019 amid market volatility and geopolitical tensions, with only one company listing on Saudi Arabia’s Tadawul, compared to three in the same quarter last year.

“Even though all IPO activities in the region have been limited to the Kingdom of Saudi Arabia in 2019, we are expecting the UAE market to pick up in the near future as multiple companies have announced their interest to go public and have initiated the groundwork for a successful IPO,” Steve Drake, Partner, Capital Markets, PwC Middle East said in a report.

“Tadawul has recently announced that it will soon allow the listing of foreign companies on its exchange, which will further promote equity activity in the region,” he added.

The only IPO in the region for Q3 2019 belonged to Saudi Arabia’s Ataa Educational Co., which provides educational services. The listing raised $93 million in IPO proceeds as the company offered 12 million shares on the Tadawul. This was the only IPO recorded across the GCC in Q3 2019, compared to $484 million raised in total during the same quarter last year.

Globally, every region recorded lower IPO activity in terms of both proceeds and volume, compared to the third quarter of 2018, said PwC, pointing to geopolitical tensions, economic weakness, and doubts regarding central bank actions.

According to the report, 225 IPOs raised $40.4 billion during Q3 2019, compared to 279 listings with proceeds of $51.5 billion in third quarter 2018 – a decrease of 19 percent in terms of volume and 22 percent in proceeds.

Meanwhile, despite the slowdown in GCC IPO activity, the UAE’s debt market saw a strong quarter – although the region witnessed a slowdown overall.

The emirate of Abu Dhabi issued $10 billion sovereign bond during the quarter, while global port operator DP World issued a sukuk, or Sharia-compliant bond, worth $1.5 billion.

FAQ's

Saudi Aramco is the Kingdom’s state-owned energy company and the world’s biggest oil producer. In November, the company reported a profit of $68 billion for the first nine months of 2019 – making it the most profitable company in the world.
An initial public offering (IPO) is the process by which a company sells a portion of its ownership (shares) to public investors to raise funds (also known as capital). The company sells its shares by listing them on a public stock exchange, where investors can purchase them.
"I am honored to announce that Saudi Aramco will become a listed company on the Saudi Stock Exchange,” Chairman Yassir al-Rumayyan said in early November. The exact percentage of the company and the possibility of another listing on a foreign exchange are both still unknown details, however.
Senior Saudi Arabian authorities have targeted a $2 trillion valuation. At this valuation, a 5 percent listing would raise $100 billion in funds – dwarfing any other IPO in history. However, some analysts and investment banks have predicted a range closer to between $1.2 and $1.5 trillion.
The IPO prospectus is expected to be released on November 10, with pricing expected November 17. Meanwhile, the float is expected to take place on December 4, followed by trading on December 11.
The IPO is part of Saudi Arabia’s overall strategy to transition into a post-hydrocarbon age. The income generated would be funneled into the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund (SWF). Saudi Arabia’s Vision 2030 plans to transform the PIF into a giant investment vehicle to help the country diversify its economy and reduce its reliance on oil revenues.
Saudi Vision 2030 is the Kingdom’s ambitious plan to diversify its economy by reducing dependence on oil and developing non-oil sectors ranging from healthcare to mining. The IPO is seen as a cornerstone of Vision 2030, boosting the PIF as the long-term investment vehicle for the Kingdom.

Saudi Arabia’s Crown Prince Mohammed bin Salman

- The Crown Prince is the architect of Vision 2030 and originally announced plans to list shares of Saudi Aramco in 2016.

Prince Abdulaziz bin Salman, Saudi Arabia’s Energy Minister

- Prince Abdulaziz assumed the role of energy minister in September of this year, replacing Khalid al-Falih.

Yasir al-Rumayyan, Chairman, Aramco

- Al-Rumayyan became chairman of Aramco’s board in September. He is best known as governor of the PIF, a role he continues to hold.

Amin Nasser, President and CEO, Aramco

- Nasser has been with Aramco for more than three decades and has held numerous leadership positions.