Aramco IPO pullback risks Saudi investor sentiment - report

Cancellation of Aramco IPO may lead to international investors questioning Saudi Arabia's commitment to reforms, according to Fitch Solutions Macro Research
Aramco IPO pullback risks Saudi investor sentiment - report
By Bernd Debusmann Jr
Wed 08 Aug 2018 01:55 PM

The possible abandonment of an international listing of a share in Saudi Aramco will likely cause international investors to question Saudi Arabia’s commitment to economic reforms, according to a new report from Fitch Solutions Macro Research.

According to Fitch, the likelihood of the IPO – originally announced in early 2016 – has “sharply declined” in recent months, with multiple reports indicating that the IPO may be delayed until 2019 or possibly not happening at all.

“We expect the ramifications of any prospective cancellation of the planned IPO to remain symbolic in nature, rather than fiscal,” the report notes. “A key objective of any planned IPO was to raise capital which would then be transferred to Saudi Arabia’s Public Investment Fund (PIF), which would serve as the vehicle through which the Saudi state would channel infrastructure investment.”

“We note, however, that the PIF retains other financing options outside of an IPO of Aramco, which would serve to offset the potential shelving of the offering,” the report added.

The ramifications of a shelved Aramco IPO, the report added, “will be more profound in the realm of international investor sentiment.”

“The international listing and its role at the centre of Saudi Arabia’s Vision 2030 Agenda has been seen as a bellwether for Saudi Arabia’s willingness to engage with international, private sector investors as key partners in the infrastructure development space, as well as the country’s intention to adopt the standards of transparency and disclosure required by developed market investors,” the report said.

Any pullback, it added, “will likely cause international investors to question this commitment and may imperil the flow of private sector capital into the Kingdom’s expansive infrastructure programme.”

According to Fitch, Saudi Arabia remains a high risk market in which to invest, scoring below international averages in trade openness and bureaucratic environment.

“Abandoning the IPO would signal the government is increasingly unwilling to enact the necessary reforms to ensure that Saudi Arabia’s risk profile improves in the eyes of prospective international investors,” the report added. “[It] will make it difficult for the government to attract sufficient foreign investment to support its economic diversification progress.”

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