Saudi Aramco IPO sets new records but raises questions for businesses in Saudi Arabia

“The Aramco IPO confirms Saudi Araba’s national oil company as the most valuable company in the world by market value, and the fact that its listing was massively oversubscribed confirms that there remains considerable interest and confidence in the Saudi economy.

“Another important objective of Riyadh’s Vision 2030 reform programme is to roll back the state as the primary driver of economic growth, and to stimulate increased private sector investment. The Aramco IPO is a critical milestone in the kingdom’s privatisation agenda. It has been conducted in parallel with capital market reforms that have improved transparency and corporate government in the kingdom. The listing of the world’s most valuable company on the Saudi stock exchange, the Tadawul, adds a huge new asset to the Saudi market.

“That said, the Aramco IPO has not been a complete success. A very important aspect of the flotation when it was first announced was to attract international institutional investors to invest in the Saudi market. The fact that the sale ended up only being offered to local and regional investors is a huge disappointment and reflects a major mismatch between Riyadh’s valuation of the company and appetite for Saudi risk from international investors. The failure to launch a parallel international listing is also disappointing and reflects some of the political complexities associated with the privatisation.

“One of the biggest concerns for Riyadh and for businesses in Saudi Arabia from the Aramco IPO is that it has only raised $25.6bn. This is a huge windfall, but it is $73.5bn short of the $100bn that was originally announced. A large portion of this money was due to be circulated in to the huge megaprojects being planned by Riyadh and the Public Investment Fund (PIF). The question now is, what impact this shortfall will have on Saudi Arabia’s investment plans. The projects will still go ahead, but the timing, the scale and how they are to be funded will all be affected, adding new uncertainties to an already challenging business environment.”