IPOs, PIF and PPPs: It all spells opportunities for financial institutions

Saudi riyal

It’s the most eagerly-awaited IPO ever—and certainly the largest.

As part of Saudi Arabia’s Vision 2030 strategy to reduce its economic dependence on hydrocarbons, the government aims to raise US$100 billion through the sale of a 5% stake in Saudi Aramco, the giant state-owned energy company. Assuming the deal goes ahead, that will make it four to five times the size of the biggest IPOs that have taken place to date,notes a new report from Insight Discovery and SS&C Advent[1].

A quick calculation shows the IPO (which could take place as early as this year) would value the company at an eye-watering US$2 trillion.

The plan is for the government to eventually transfer all its shares in Aramco to the kingdom’s sovereign wealth fund, the Public Investment Fund (PIF). As a result, the government will no longer be reliant for much of its income on direct revenues from the energy sector. Given Aramco’s notional value, it would also make the PIF by far the world’s largest SWF, dwarfing Norway’s Government Pension Fund.

Greater foreign engagement

It suggests too that moves to open up Saudi Arabia’s capital markets are gathering pace. As the Insight Discovery/SS&C Advent report observes: “The success of a transaction of this scale [the Aramco IPO] will require the large-scale involvement of foreign investors.”

Another opportunity is the potential for foreign institutional investors to get involved in Saudi Arabia’s burgeoning Private Public Partnerships (PPPs). These aim to increase the role of the private sector in the economy, and will be used to help fund the massive infrastructure projects envisaged for the country.

The PPPs will likely give rise to new debt and equity securities, notes the report, and will require far greater transparency in financial markets and the funding of infrastructure projects than there has been in the past.

They should also help with the development of the massive King Abdullah Financial District (KAFD)—one of the most prominent infrastructure projects being undertaken, and a key part of the government’s plans to accelerate integration of the country’s financial markets with those of the rest of the world.

A bright future

“At a time that yields on bonds in developed markets are very low (or negative), and developed equity markets are frequently volatile, foreign institutions should be attracted to the PPP projects and IPOs in Saudi Arabia,” says the report. “And those institutions will need the assistance of fund administrators and technology providers that are established in the region and that truly understand the markets.”

For those companies with a commitment to and expertise in the region, exciting times lie ahead.


[1] The transformation of Saudi Arabia 2016-30: What are the opportunities for financial companies? By Insight Discovery and SS&C Advent

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Posted in Advisors, Asset Managers, Global, Technology, Wealth Management and Financial Planning

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