The appointment of the head of Saudi Arabia's sovereign wealth fund as the Saudi Aramco chairman replacing Energy Minister Khalid Al-Falih, signals Riyad's desire to speed up the company's Initial Public Offering (IPO), according to Bassel Al Khatib, an economy expert and founder of Beirut-based Business Echoes.
To achieve this, Al Khatib told Anadolu Agency that Saudi Arabia formed a new ministry for industry and mineral resources, separate from the kingdom's energy ministry, "The relations of Saudi Aramco, which aims to turn into a stock company, with markets and investors will be independent from the state."
Al Khatib hailed Yasser Al-Rumayyan, an adviser to the Royal Court and former member of the board of directors of the Saudi Stock Exchange Tadawul, as an ideal candidate with his considerable experience in banking.
He added that "more importantly, he has presided over the executive committee managing Saudi Aramco's IPO plans and has considerable experience in initial public offerings in the kingdom both in government and the private sector."
- Saudi Aramco’s IPO forms pillar of Vision 2030
Riyad aims to diversify its economy to reduce dependency on oil, as part of the kingdom's Vision 2030, Al Khalid explained.
"The kingdom wants to change the perception of foreign investors and credit rating agencies towards the Saudi economy, and selling off about 5% of Aramco’s shares is just the beginning of this aim," he said.
In response to the question of the effects of the IPO on Gulf markets, he said that Aramco's IPO would elevate the Saudi exchange from local to global, while increasing the company's exposure, and opening up Gulf Markets to greater foreign investment opportunities.
- IPO will be extremely important in post-oil era
"The timing of Yasir al-Rumayyan's appointment as chairman of Saudi Aramco is significant given the anticipated IPO plans. His appointment underscores how the Kingdom’s sovereign wealth fund is playing an increasingly active role in the Aramco listing preparations," Giorgio Cafiero, the CEO and founder of Gulf State Analytics, a Washington-based geopolitical risk consultancy told Anadolu Agency.
"Given that for many years the energy minister held the chairmanship of the country's oil giant, there is a lot to take away from the fact that Rumayyan, who has served as a banker and regulator throughout this career, will now be tasked with the responsibility of overseeing Aramco," he said.
He also underscored that Rumayyan has become more influential since his advisory role appointment at the Royal Court in 2015, the year when King Salman ascended to the throne and empowered his son to spearhead Vision 2030. He also maintained that Energy Minister Khalid al-Falih was blamed for the slow pace of Aramco's move towards greater diversification.
- The process of Aramco's IPO
The process is being undertaken in two stages.
Firstly, Saudi Arabia's stock exchange, the Tadawul, officially completed its full inclusion on the Morgan Stanley Capital İnternational (MSCI) emerging markets index on Aug 28, with the anticipation of easing international capital inflow into the Kingdom.
Secondly, Aramco is preparing to sell up to a 5% stake by 2020-2021 to raise $100 billion, in accordance with Mohammed Bin Salman's plan. If realized, the IPO promises to be the biggest in history, and could make the company's market value hit $2 trillion. The current record holder is Chinese retail giant, Alibaba, whose IPO raised $25 billion in September 2014.
U.S.-based international banking giant JPMorgan is considered to be the underwriter for Aramco's IPO.
Saudi Arabia has not said which international exchange it will list Aramco on, however, several indicators point to Tokyo as the preferred choice, partly because there is a huge and growing demand for Saudi oil in Asian markets.
The London Stock Exchange, which was initially in the running, is not considered a credible option because of the instability surrounding Brexit, according to the company. Similarly, the New York market is not preferable as the U.S. Congress passed a bill allowing the families of Sept. 11 victims to sue the kingdom for the attacks.
By Busranur Begcecanli