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KHALEEJ TIMES, Tuesday, Dec 3, 2019 | Rabi Al Thani 6, 1441

Saudi Aramco proving its worth as IPO's institutional tranche more than twice oversubscribed

Saudi Arabia: Institutional investors have put in SR144.1 billion ($38.4 billion) worth of bids for Saudi Aramco's planned initial public offering (IPO), equivalent to more than twice the number of shares on sale, financial advisers for the IPO said on Monday.

The bookbuilding process for allocating shares to institutional buyers - typically asset managers, insurers or pension funds - began on November 17 and investors have until December 4 to place orders.

Aramco plans to sell 1.5 per cent of its shares in a deal that could raise up to $25.6 billion.
The state-owned Saudi oil giant has received subscription orders for around 4.6 billion of shares so far from institutions, Samba Capital, NCB Capital and HSBC Saudi Arabia said

Aramco has previously said 0.5 per cent of the offering will be allocated to retail investors, leaving 1 per cent - or two billion shares - for institutional buyers.

The lead managers didn't provide a breakdown of the institutional investors, but in a separate statement last week Samba Capital said the bulk of orders came from Saudi companies and funds, while foreign investors accounted for just 10.5 per cent of the offers as of November 28. The retail tranche, which closed on that date, attracted bids worth SR47.4 billion, equivalent to around 1.5 times the number of shares offered.

Weighting concerns addressed
Meanwhile, Saudi Arabia's Tadawul has introduced an equity index cap of 15 per cent which is set to address concerns over the weighting Aramco will have when it lists on the exchange.The Aramco IPO is seen as a test for the Saudi exchange, where the largest listing so far has been worth $6 billion.

"Any constituent whose index weight reaches or exceeds the threshold will be capped in accordance with the set limit," Tadawul said in a statement on Monday.

Aramco is expected to have an initial weight of close to 10 per cent in the Tadawul all-share index. "This is a precautionary measure to assure investors regarding Aramco's impact on the Saudi index in case of any further liquidation in the future or in case the stock price goes up," said Mazen Al Sudairi, head of research at Al Rajhi Capital.

The cap would limit the risk of any security representing a large percentage of the index and becoming a major risk for the market, as well as limiting the index's correlation to the oil price, he added.

The move is part of a broader update of Tadawul's index methodology, including a revision of the free float shares calculation methodology. The new measures will "ensure more balanced indices, which will accurately represent the movement of the market, enhance disclosures and transparency and minimise securities' dominance," Tadawul CEO Khalid Al Hussan said in a statement.

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