No rush as many investors steer clear of Aramco IPO


By Simon Jessop & Clara Denina


London: The Saudi Aramco IPO was supposed to be a cornerstone of Crown Prince Mohammed bin Salman’s ambitious plan to open the gates to foreign investment in the kingdom. But there’s no sign of a stampede.

The state oil giant confirmed on Thursday that its initial public offering would be the biggest in history, raising $25.6 billion. The offering will surpass Alibaba’s 2014 New York flotation and value Aramco at $1.7 trillion — still short of the prince’s $2 trillion goal.

However many global investors focused on emerging markets are set to stay away when Aramco debuts on the Riyadh bourse, expected next week, according to information provided to Reuters by 26 major asset managers outside the Gulf region who collectively manage more than $7 trillion.

Most of the active fund managers said they would likely steer clear of the IPO, citing persistent concerns about risks around governance, the environment and regional geopolitics.

All of the passive managers, who track certain indexes rather than making specific investment calls, also said they would not buy shares in the offering. But the bulk of them are likely to routinely become investors when the stock is admitted into the indexes of benchmark providers MSCI, FTSE Russell and S&P, a development due as early as late-December.

MARKETS-HERE-NOW

While the responses give an indication of institutional demand, they provide just a small window into global appetite as they largely concern investments made by funds open to the public. Much larger sums of money are often invested on a private basis on behalf of major players li ke pension schemes and sovereign wealth funds.

Institutional investors bid $106 billion to take part in the IPO, which was more than 4.6 times oversubscribed, but how much of that demand came from overseas investors was not disclosed. The last bid process update to do so was published last Friday, and showed foreign institutional demand at 10.5% of the total $38.4 billion tabled.


TO BUY OR NOT TO BUY


Reuters contacted 66 non-Gulf asset managers who all either had exposure to Saudi stocks amounting to at least 5% of their portfolios, or of above 1% to the MSCI’s Emerging Markets Index, according to an analysis of data from Morningstar, a US-based financial research group. Ten other leading non-Gulf investors who were not on that list were also interviewed.

Of the total of 18 active asset managers who provided information, 12 — or two-thirds — said they did not plan to participate in the Aramco IPO. Five said they had not decided while one said it would invest in the offering.

Seven of the eight passive investors that spoke to Reuters said they would likely buy Aramco shares as and when they were included in their respective benchmark indexes, but would not take part in the IPO. One said it did not plan to invest at all.

The range of concerns by active investors are broad; some simply won’t invest in oil companies while others are wary about state interference in the running of the company, Saudi Arabia’s human rights record or geopolitical risk. “Considering its core business and the impact of its contribution to global emissions, and following our responsible investment policy, we have no interest or plan to invest in Saudi Aramco,” said Financiere des professionnels.





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