Aramco listing delay risks Saudi investor sentiment – Fitch report

Fitch Solutions Macro Research findings suggest IPO freeze could trigger scepticism from international investors.

The possible cancellation of Aramco’s flotation could have negative ramifications.
The possible cancellation of Aramco’s flotation could have negative ramifications.

The possible freezing of Saudi Aramco’s initial public offering (IPO) could lead to international investors querying the kingdom’s commitment to economic reforms, according to a new report from Fitch Solutions Macro Research and cited by our sister publication Arabian Business.

Fitch states the likelihood of the IPO has “sharply declined” in recent months, with multiple media reports indicating that the IPO may be delayed until 2019 or possibly may not take place 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 continued, “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 noted, “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.”

Saudi Arabia remains a high risk market in which to invest, according to Fitch, 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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