Saudi Arabia Mulls Dual Listing, Traded Fund for Aramco IPO

Why This Saudi Prince Is Known as 'Mr. Everything'
  • Kingdom seeking ways to broaden investor base for huge IPO
  • Foreign investors tightly restricted on local stock market

Saudi Arabia is considering a dual listing as a way to reach investors beyond the local stock market for the sale of shares in state-owned oil giant Aramco, which could be the world’s largest initial public offering, the kingdom’s deputy crown prince said.

“We are thinking about several options,” Prince Mohammed bin Salman, who heads Saudi Arabian Oil Co.’s supreme council, said in an interview last week at King Salman’s private farm in Diriyah, the original home of the Al Saud royal family. “Either it will be double listed or maybe we can have a fund in the U.S. market that can only trade and invest in Saudi Aramco, like some of the funds that are already out there that trade in gold or oil,” he said, without giving further details.

Mohammed Bin Salman
Mohammed Bin Salman
Source: Saudi Arabia’s Royal Court

Prince Mohammed is leading the planning for the sale of less than 5 percent in Aramco, which is targeted for 2017-2018. It could raise as much as $106 billion, according to the Sovereign Wealth Fund Institute, making the company the largest publicly traded one in the world, with a market capitalization over $2 trillion. Even a small stake would dominate the tightly regulated Saudi stock market, the Tadawul, which has a capitalization of $398 billion.

“If speculation of the size of the deal is correct, they will have to look for liquidity outside the Kingdom,” James Bannan, who manages $170 million in frontier markets at Coeli Asset Management SA, said by e-mail from Malmo, Sweden. “Some structure in the U.S. or London makes sense,” he added. 

The Tadawul All-Share Index is down more than 30 percent over the past year.

Hong Kong Offer

Chinese officials early this year pitched a dual listing to Saudi officials that would put Aramco’s shares on both the Hong Kong and Saudi exchanges in return for anchor investments from Chinese funds, people familiar with the matter told Bloomberg in February. There’s been no word yet of any Saudi reaction to the offer.

The Aramco placement could dwarf the $25 billion public offering in 2014 by Alibaba Group Holding Ltd., the world’s largest, and Facebook Inc.’s $16 billion share sale. But it’s difficult to determine how much foreign investors would be willing to pay since Aramco has never published financial information. Many state-run oil companies trade at substantial discounts to their private-sector competitors.

“They need to treat the IPO, even if done locally, as if it’s a dual listing in terms of transparency and governance,” said John Sfakianakis, the Riyadh-based director of economics research at the Gulf Research Center, a think tank. “A level playing field for all has to be there from the start.”

In the Saudi market, foreign participation remains restricted. Since it was opened to some direct foreign investment in June, less than a dozen overseas investors have received licenses to trade in the market.

“If the listing is on the Saudi stock exchange alone, there will always be question marks on transparency, question marks on who will be able to invest in terms of foreign investors,” said Ghanem Nuseibeh, founder of London-based consulting firm Cornerstone Global Associates. “A dual listing or listing in a foreign jurisdiction will give a greater degree of confidence, particularly when it comes to foreign investors. But then again, that will come at a price in what the government is prepared to disclose in terms of Aramco,” he added.

Advisers Named

The kingdom chose JPMorgan Chase & Co. and Michael Klein, the former Citigroup Inc. investment banker who runs his own boutique, to advise on the Aramco offering, people familiar with the matter said this week. Klein is providing strategic advice to the government, while JPMorgan is working on preparations for the IPO and may be among the banks that underwrite the listing, the people said, asking not to be named as the details aren’t public. The deliberations are still at an early stage, and no final decisions about the IPO have been made, they said.

By selling shares in Aramco, Prince Mohammed will give investors a stake in the world’s biggest oil fields and expose the assets that underpin the kingdom’s entire economy to unprecedented scrutiny. The planned sale has also prompted concerns at home about how the company will be run once the stake is sold. 

The sale is a key part of his broader plan to reduce the country’s dependence on oil. He also aims to transform Aramco from an oil company into an energy and industrial conglomerate.  

The government plans for Aramco to become a holding company that has stakes in its subsidiaries without being directly involved in managing them, Prince Mohammed said in the interview. “Our main goal is to sell a stake in Aramco to the public and then sell also the subsidiaries of Aramco in a public offering including its refineries,” he said.

The remaining Aramco stake not sold in the IPO, which is now held directly by the government, will be transferred to the country’s sovereign-wealth fund. In an interview outlining the plan with Bloomberg News last month, Prince Mohammed said the shift would make the fund the world’s largest by far with more than $2 trillion in assets.

Income from that fund would help Saudi Arabia cope with the steep drop in oil prices since 2014. It is already cutting subsidies on electricity, fuel and water as part of the biggest economic shake-up since the founding of the kingdom that has spread the burden of lower crude prices among a population more accustomed to government largess.

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