The finances of all six Gulf Cooperation Council countries have suffered from a dive in oil prices since mid-2014, which has slashed their export revenues and turned their state budget balances into the red.
Gulf Arab oil producers may see more listings on their capital markets in the coming years as governments stifled by low crude prices look for ways to raise their lagging budget income.
The planned initial public offering (IPO) of Saudi Arabia’s oil giant Aramco could encourage other Gulf countries to list parts of their prized oil assets and help reverse a steady decline in market listings in the region ruled by family businesses.
“Because of oil prices going down, they (governments) need money to support expenditures and sell some of their companies they currently hold,” Ahmed Al Marhoon, director general of the Muscat Securities Market, told a conference on Arab IPOs.
“Saudi Arabia’s announcement to sell 5% of Aramco is a very significant step forward. It will create a momentum in the region for other countries to see benefits of selling some of their oil shares,” he said.
The finances of all six Gulf Cooperation Council countries, that also include the United Arab Emirates, Qatar, Kuwait and Bahrain, have suffered from a dive in oil prices since mid-2014, which has slashed their export revenues and turned their state budget balances into the red.
Oman, which lacks the large oil and financial reserves of its wealthier neighbours, has been hit particularly hard and is facing a decreasing but still massive budget shortfall of 10.3% of gross domestic product this year, according to the International Monetary Fund.
That is only slightly deeper than the projected budget gap of 9.5% of GDP in neighbouring Saudi Arabia, which is heavily reliant on oil to finance its budget needs.
“Taking into consideration the governments’ needs of money as a reason to sell their share to the public, that will raise the number of IPOs on our exchanges,” Marhoon said.
The listing of Aramco, expected to be the world’s biggest IPO and raise tens of billions of dollars, is a centrepiece of the Saudi government’s ambitious ‘Vision 2030’ plan championed by Deputy Crown Prince Mohammed bin Salman to diversify the top Arab economy beyond oil.
The Saudi government next year plans to list up to 5% of Aramco, which was founded in 1933 and employs more than 55,000 people, on the local bourse and international stock markets. The proceeds will be used to invest in other sectors likely to create jobs for the growing population of young Saudis.
While Aramco is the world’s largest oil firm, the UAE, Kuwait and Qatar also hold major oil assets that are managed by state companies.
In Oman, the government expects to raise 2bn rials ($5.2bn) in the next five years by privatising some companies, officials said in October. It has revealed plans to privatise 49% of Muscat Electricity Distribution Company (MEDC) in a combination of private placement and IPO.
The number of IPOs on Arab securities markets has plunged over the last decade to just four last year, from the high of 41 in 2007 when speculation was driving the markets before the global financial crisis, according to data presented at the conference by the Muscat Securities Market.
Their value has also dropped dramatically to just $876mn in 2016 from $12.8bn seen as recently as in 2014, the same presentation showed.
This trend may prove hard to reverse despite the cash-seeking governments seen driving the IPO activity in the near future as traditional family businesses that dominate the region’s corporate landscape are reluctant to face investors’ scrutiny.
“It’s a very difficult exercise actually to convince a family business to go public. And this is the call for the regulators … to facilitate by their regulations and encourage family businesses to go public,” Majd Maaitah, managing director for securities and funds administration services at the National Bank of Abu Dhabi told the same event.
In Saudi Arabia, the Capital Market Authority currently has at least one company registered with it that is considering listing at the country’s parallel equity market Nomu, which has lighter listing requirements than the main market and serves as an alternative platform for companies willing to go public.
“We have been contacted by more than one GCC company and they are in the process of appointing financial advisers,” said Yarub Albadi, the head of the CMA’s IPO unit, without giving details.