Saudi Aramco’s inclusion on global indexes set to attract $3.8 bln: Analysts

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Saudi Aramco’s inclusion on global index providers MSCI and FSTE Russell is likely to attract around $3.8 billion, analysts say.

The firm’s addition on the world’s largest index provider MSCI’s Emerging Market Index could attract $2.4 billion in both passive and active inflows, while its inclusion on FTSE could lure a further $1.4 billion, based on 0.6 percent and 0.5 percent weights on both EM Indices respectively, based on estimates by Riyadh-based Al Rajhi Capital.

“The bigger question is what is going to be its weight – we are still waiting for MSCI to publish this number,” said Pritish Devassy, a senior analyst at Al Rajhi Capital. “The number depends on a lot of factors such as free float, liquidity, maximum foreign shareholder limit,” he added.

Global index providers MSCI, S&P Dow Jones, and FTSE Russell earlier said they could fast-track Saudi Aramco’s inclusion into their indexes as early as December, if the company lists by then.

The Kingdom will offer 1.5 percent of Aramco’s shares on the Saudi Stock Exchange (Tadawul), with a third of the offering set aside for retail, or individual investors. The remaining equity will be allocated to institutional investors, such as hedge funds or banks.

MSCI, which is followed by global funds that manage trillions of dollars in assets, recently said that if Aramco starts trading on on or before December 12, it would add the company to the MSCI Equity Indexes from December 17. Otherwise, the company would have to wait to be considered for inclusion after January 5, 2020.

The company has set a valuation of $1.6 trillion to $1.7 trillion – the high-end of which could top Chinese e-commerce giant Alibaba’s record-breaking IPO that raised $25 billion in 2014.

Meanwhile, Aramco is expected to compose 9.1 – 9.7 percent of the Tadawul All Share Index (TASI), the Saudi benchmark index, after listing based on the announced share price of SAR 30-32 ($8-8.53), Al Rajhi Capital noted.

The IPO is open to domestic and qualified foreign investors (QFIs) in Saudi Arabia, as the company will not be participating in any international roadshows.

Saudi Arabian King Salman bin Abdulaziz said on Wednesday that the IPO will allow foreign and domestic investors to take part, and that the listing will help create thousands of jobs into the Kingdom.

Aramco has promised a dividend of $75 billion in 2020. The higher end of the oil giant’s valuation, at $1.7 trillion, implies that Aramco will reward investors at a yield of 4.4 to 4.7 percent. This is comparable to international oil players including Shell, which has a dividend yield of 6.3 percent and Exxon Mobile’s yield of 5 percent.

Investors and banks are gearing up in preparation for the IPO.

Russian officials earlier told Al Arabiya English that the Russia-China Investment Fund (RCIF) is working to lure Chinese investors for the IPO.

The Kingdom’s central bank, the Saudi Arabian Monetary Authority (SAMA), has given banks the green light to double lending limits for retail investors looking to subscribe to the IPO, the chief executive officer of Riyadh-based Samba Capital told Al Arabiya.

The central bank is monitoring lending limits in the Kingdom daily to ensure that banks are not overleveraging to individual investors, one banker told Al Arabiya English.

Aramco is still in the book building process of the IPO, which is expected to wrap up on December 4. The announcement of the final offer price and allocations of shares to institutional and retail investors will be made on December 5.

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