Saudi Aramco possible Asia listing: How will domestic share price be affected?

(UPDATE: Saudi Aramco shares rise 10% in pre-market auction as at 9.35AM AST 11 December)

Just one day before it hits the domestic market, Saudi Aramco is reportedly considering a secondary listing overseas.

The Wall Street Journal reported that state officials have been meeting with international investors in the past few weeks to discuss the possibility of a share sale in Asia, in a bid to attract more foreign investment.

According to sources with knowledge of the matter, plans for an international listing stem from the company failing to garner a bigger global buyer base for the Tadawul bourse sale.

They added that Saudi officials are targeting a listing in either Japan or China and are only likely to initiate formal proceedings from next year.

It had also been reported by The Wall Street Journal that most of the institutional orders, amounting to more than US$106 billion, had come from local and regional buyers. Investors from North America, Europe, and Asia had found the valuation of US$1.7 trillion too exorbitant.

A statement from the lead underwriter of the deal revealed that non-local institutional investors were given roughly 23% of the two billion non-retail shares allocated for sale.

On the retail side, some five million Saudi nationals have been given share bids, equating to 15% of Saudi Arabia’s population.

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How will the domestic share price be affected?

The Tadawul listing will see Saudi Aramco sell off a 1.5% stake in the company, at a price of US$8.53 per share. But as Bloomberg Businessweek Editor Peter Coy wrote, ‘shrinking the offering may have allowed Saudi Aramco to get a higher price per share, but it comes with downsides’.

One of those downsides, he went on to add, is that ‘rather than building a base of sophisticated international investors’, who were seeking a lower price, the company is now ‘selling largely’ to citizens, as well as neighbouring and domestic institutions.

While these factors can shed more light on Saudi Arabia’s decision for an overseas listing, they should not affect the performance of the domestic market, for now.

The Saudi government, Aramco’s primary shareholder, has stated that it would not sell new shares for at least another year.

Furthermore, the company has also offered retail investors a bonus share for every 10 shares held for the first six months, so analysts believe short selling would be unlikely.

For the immediate period, Dubai fund manager Dalma Capital had predicted that share price would likely rise above the opening mark once the market launches on Wednesday, on the back of overwhelming demand.

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