Saudi Arabia's stock exchange expects an influx of foreign funds to smooth the listing of national oil firm Saudi Aramco, despite concern among some analysts about whether the market can absorb the huge offer, the exchange's chief executive said on Sunday. "Foreign investors are putting in more money - every day we have improved liquidity capacity," Khalid al-Hussan said in an interview.
The government has said it plans to sell about 5 percent of Aramco, hoping to raise some $100 billion or more in what is likely to be the world's biggest initial public offer. Officials have said that in addition to Riyadh, Aramco may list on one or more foreign markets such as New York, London and Hong Kong.
Many private analysts think the $100 billion target is too ambitious, but even a $50 billion IPO could strain the Saudi market, which has a capitalisation of about $500 billion - especially if the burden is not shared with a foreign exchange.
Saudi Arabia's biggest IPO so far, the sale of a stake in National Commercial Bank in 2014, raised just $6 billion. In January this year, an advisory council to the government asked the securities regulator to study whether the Aramco sale might destabilise the market. Hussan insisted, however, that from technical and regulatory perspectives, the Saudi exchange was fully prepared to handle the Aramco IPO, alone if necessary.
He noted that foreign investors were not permitted to buy shares directly in the National Commercial Bank offer. Now, rules have been changed to permit foreigners to take part in local IPOs.
Hussan also said last month's decision by equity index compiler FTSE Russell to upgrade Saudi Arabia to emerging market status, and a similar decision which fund managers expect MSCI to make in June, would attract billions of dollars of fresh foreign money to the local market.
Regional investment bank EFG Hermes estimates Saudi Arabia could see fund inflows totalling $30 billion to $45 billion in the next two years if it reaches the foreign ownership levels of markets in neighbouring United Arab Emirates and Qatar.