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Saudi bourse sags as giant Aramco listing looms

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Dubai (AFP)

Saudi stocks sagged two percent Sunday after the announcement that the blockbuster listing of state energy firm Aramco was headed its way, as analysts warned it risked overwhelming the local bourse.

After years of repeated delays, Aramco on Sunday announced its intention to float an unspecified percentage of its shares on the Tadawul stock market, the region's biggest capital market.

The state-owned company however said there was no decision yet on the second part of the IPO to list on an international stock market, raising doubts that this much-anticipated step will ever happen.

The local bourse lost 1.99 percent to 7,590.33 points during the session.

Ellen Wald, author of "Saudi Inc." said that listing on the domestic market without any plans for an international offering was risky because it could "completely overweight" the local market.

"If oil prices drop or Aramco stock falls, it is such a large part of Tadawul, it could bring the entire stock market down," she warned.

The Saudi stock market is the largest bourse in the Middle East and North Africa with a capitalisation of $500 billion, and although it has undergone key reforms in the past several years, more regulatory work is still needed.

If Saudi Arabia decides to sell two percent of the company, it could generate close to $40 billion, a huge amount that would impact liquidity levels in a country that has been facing sharp declines in oil revenues.

The richest Saudi families, many of whom had members detained in Riyadh's Ritz-Carlton hotel during a months-long corruption crackdown in 2017, have been pressed to commit large sums, Bloomberg News has reported.

The Tadawul All-Shares Index fell 4.0 percent in October as investors opted to sell their holdings to generate the necessary cash for the Aramco IPO. TASI is now 1.0 percent down on last year's close.

"Pressuring rich Saudis, many of whom were imprisoned at the Ritz, to invest in the Aramco IPO and to hold on to the shares is basically coercion," Wald said.

The giant listing could end up taking money out of the Saudi economy that could be used to diversify it in more fundamental ways, and instead transfer it to the government, she said.

"Plans to relax lending regulations and/or encourage Saudi retail investors to borrow money to invest in Aramco is a terrible idea. No one should borrow money to invest in the stock market."

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