Saudi Aramco IPO set to kick off new listings, divestments in the Gulf region

A billboard displaying an advertisement for Saudi Aramco's IPO in Riyadh. (File photo: AFP)

Saudi Aramco’s successful listing on the Saudi Stock Exchange (Tadawul) could kick off other initial public offerings (IPOs) and energy divestments in the Gulf region, as countries seek funds to meet their economic targets.

In a bid to diversify away from oil and attract more foreign funds, Gulf countries are looking to unlock the value of their existing assets either through an outright divestiture or an IPO. The latter has become more attractive since Aramco raised $25.6 billion in a historic public listing on the Tadawul earlier this month.

This “will catalyze Oman, Abu Dhabi, and possibly Kuwait to follow down the path of Aramco over time,” senior oil analyst Neil Beveridge from Bernstein told Al Arabiya English.

Oman is already on its way to doing just that.

Days before Aramco priced its IPO, Oman’s oil minister informally announced a plan to list 20 to 25 percent of Oman Oil Co’s shares in a potential listing in 2020.

“We are working on it, maybe by the end of next year the process will be completed,” Mohammed bin Hamad al-Rumhi said, responding to a question posed by a member of the audience at a chemicals forum in Dubai.

Oman, the biggest oil producer in the Middle East outside the Organization of Petroleum Exporting Countries (OPEC), has charted plans to sell off state assets as it looks to deal with fiscal deficits that built up after a drop in oil prices.

Abu Dhabi National oil Co (ADNOC), which is the 12th largest oil producer in the world, is considering a secondary listing for its unit ADNOC Distribution on a foreign exchange, Reuters reported earlier in April.

In 2017, ADNOC listed 10 percent of ADNOC Distribution, the largest operator of petrol stations and convenience stores in the United Arab Emirates, on the Abu Dhabi Securities Exchange.

When asked about potential IPO plans for the rest of the company, ADNOC declined to comment. Kuwait National Petroleum Corp did not immediately respond to an Al Arabiya English request for comment.

“The fact that the Aramco IPO did well can encourage more businesses to go public,” Vrajesh Bhandari, a portfolio manager at Dubai-based Al Mal Capital, told Al Arabiya English.

But, businesses in the region still have to take other factors into account such as the level of liquidity in the domestic market, the outlook on global equities as well as the company’s unique growth profile in a weak macro environment, Bhandari added.

Aramco ‘in a league of its own’

Some analysts, however, still believe that it is less likely for other Gulf countries to follow in Saudi Arabia’s footsteps to list Aramco.

“Aramco stands in a league of its own, no other NOC (National Oil Company) has even the resources level to play with as Aramco,” said Cyril Widdershoven, geopolitical analyst and director of Dutch consultancy Verocy.

Investors, particularly those in Saudi Arabia and the wider Gulf region, have long been attracted to the oil giant for its profitability and for having the lowest average cost of crude oil production in the world, at around $3 a barrel. It also sits on one of the biggest oil reserves in the world, about 10 times larger than those of its next biggest competitor ExxonMobil.

Within a day of its listing, Aramco’s shares hit the $2 trillion mark on several occasions, indicating that investors had largely shrugged off concerns related to the company’s valuation.

“Kuwait, (and) Bahrain are far from even thinking about it … the current operational, economic and political support for an IPO is not available at all,” Widdershoven said.

Saudi Aramco’s stock market debut, while attracting Asian, Russian and Western institutions to Gulf markets, also “shows that the region is heading for change, away partly from oil,” he added.

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