IPOs, PIF, and PPPs: Opportunities abound in Saudi Arabia

By: Kaushiq Kodithodika

Saudi Arabia’s Vision 2030 aims to reduce its economic dependence on hydrocarbons. Part of the plan is to sell 5% of Saudi Aramco, the state-owned energy company for US$100 billion. According to a new report from Insight Discovery and SS&C Advent, it will be the biggest IPO in history, and would value the company at US$2 trillion.

The government will eventually transfer all its shares in Aramco to the Public Investment Fund (PIF), the kingdom’s sovereign wealth fund. This ensures the government will no longer be reliant on direct revenues from the energy sector for much of its income. The move will also make the PIF the world’s largest SWF.

Moves to open Saudi Arabia’s capital markets are also gathering pace. According to the Insight Discovery/SS&C Advent report, “The success of a transaction of this scale [the Aramco IPO] will require the large-scale involvement of foreign investors.”

There is also 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 fund infrastructure projects.

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

The PPPs will also help with the development of the 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.

“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. To learn more about how Vision 2030 could affect your business, contact us at solution@sscinc.com