Saudi Arabia actually has much more than its oil sector to offer investors and as investment banks and global stock exchanges salivate at the prospect of the expected largest IPO ever, even though the Saudi Aramco may have become the object of intense worldwide speculation.
And just a part of the kingdom’s plan to unlock its hidden economic treasures is the state energy giant, which is expecting to raise as much as $100 billion as it lists a small portion of the company next year.
“The money that will come in is not money they’ll put in the bank at 2 percent interest,” said Tom McNulty, a director specializing in the energy sector at Navigant Consulting. “It’s for turning one industry into 10 to 12 industries.”
Signing multi-billion dollar deals with Indonesia, Malaysia, China and Japan, this diversification away from oil is the reason why King Salman bin Abdulaziz recently spent a month in Asia. Saudi Arabia says it wants to increase foreign direct investment from the current 3.8 percent to 5.7 percent of GDP by 2030 as the kingdom’s government is now pushing for more public-private partnerships.
“We see utilities, airports, health care and real estate holding the best opportunities from the point of view of public-private partnerships,” said Saleem Khokhar, head of fund management at National Bank of Abu Dhabi.
There are other industries where opportunities lie as the kingdom opens its door wider to foreign investors.
Mining s ne such industry as the country has a treasure trove of other natural resources.
“It has promising sites of minerals such as gold, silver, copper, iron, platinum and other strategic materials,” said Jaap Meijer, head of equity research at Arqaam Capital, an emerging markets investment bank based in Dubai.
“I remember when I was there, everyone would say how rich the country is with other resources,” said Mark Keenan, who used to invest for members of the Saudi royal family and is now managing director and head of commodities research in Asia for Societe Generale.
Renewable energy is another lucrative sector. The kingdom acknowledges that “we still lack a competitive renewable energy sector at present” in its road map to diversify away from oil is spelled out in its Saudi Vision 2030 plan.
Geneatin of 9.5 gigawatts of renewable energy is one near term goal is to maximize solar and wind power in the country.
With the construction of two solar panel parks on the site of the kingdom’s petroleum research center in Riyadh in 2012 and 2014, Germany’s Phoenix Solar has a head start in Saudi Arabia.
“There is real competition with about 20 to 30 companies who might be interested and submit bids for upcoming tenders. But in reality, the maximum is 10 competitors who are really in a position to win,” said Friedl. “You need at least Saudi Arabian or GCC experience. You need at least a few power plants as reference projects and you need financial facilities for Saudi bonds.”
Another important sector is capital markets which has also been planned to be opened up. With a market capitalization of more than $400 billion reflected in the Tadawul All Share Index, the Saudi Stock Exchange is also called the Tadawul, which means “trading” in Arabic. All of the 176 listed names are Saudi companies.
Envisioning a day when foreign companies can list, Mohammed El-Kuwaiz, vice chairman of the Capital Market Authority, regulates the exchange, says: “the Saudi capital market was an island unto itself. It was viewed as targeting local issuers and investors.”
(Adapted from CNBC)