Giant Aramco listing a critical test for young Saudi exchange

The Tadawul has said it has been preparing for years and is primed for the long-awaited share sale in coming weeks. But hosting possibly the biggest initial public offering in history represents a huge leap into the big league for a 12-year-old exchange that only admitted foreign investors four years ago.

"You have to have really robust technology in order to support the spike that's expected with a high-profile IPO," said Spencer Mindlin, an analyst at Aite Group.For an exchange in an emerging market like Saudi Arabia, the Aramco IPO arguably carries more risk than for an exchange in a country with a more developed capital markets infrastructure, because the IPO will set the tone for the market, he added.

"They're asking who are the cornerstones, is there liquidity in the market, how much will be leveraged, is there any potential risks with margin calls?" said one banker, who asked not to be named as he is not authorized to speak publicly.Share sales of the world's most profitable company will begin on Nov. 17, according to the IPO prospectus published on Saturday.

But Aramco itself has warned the transaction could disrupt trading on the exchange, where the largest listing so far has been worth US$6 billion. The past two years have seen several major investment banks join the exchange as members including Goldman Sachs and Citi , meaning they can broker and deal there, providing more outlets to help investors to trade.In 2015, when foreign funds started buying Saudi stocks, the average daily traded value was US$1.8 billion. After a sell-off in Saudi stocks in October 2018 following the murder of journalist Jamal Khashoggi, volume dwindled, with average traded value in 2019 at US$900 million a day.

Their attitude could be crucial to how the stock trades as it is still unclear how many international funds will take part in the listing.

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