By Stephen Kalin, Davide Barbuscia and Hadeel Al Sayegh
RIYADH/DUBAI (Reuters) – The Saudi central bank is vetting local lenders’ exposure to Saudi Aramco ahead of an initial public offering (IPO) of the state-oil giant that will likely see large numbers of Saudi investors seek loans to buy its stock, three sources familiar with the matter said.
The Saudi Arabian Monetary Authority, or SAMA, contacted Saudi banks last week, asking them a series of questions about their lending exposure to Aramco, two of the sources said.
Saudi investors are expected to be large buyers of Aramco shares, partly because of a “patriotic” push to own a piece of the kingdom’s crown jewels after an attack on oil facilities last month crippled Saudi crude production and exposed the country’s defense vulnerabilities.
SAMA is checking whether local banks have the capacity to handle demand for loans linked to the IPO, one of the sources said. Up to 6-7 million local investors are expected to participate in the listing, he added, but it is not clear how many of them will use credit to finance their share purchases.
The authority is assessing “risk weighting and wants to ensure there will be no (regulatory) breaches”, a second source said.
The source said SAMA’s questions – via telephone and email – were around how banks classify their exposure to Aramco, including its subsidiaries.
“Aramco has so much ownership in so many entities … it’s hard to say how much exposure it comes to,” he said.
The world’s most profitable company, Aramco dominates the local economy with over a dozen domestic subsidiaries in addition to partial ownership in joint ventures including power generation companies and large petrochemical firms such as Petro Rabigh (SE:).
Saudi banks have been under pressure in the past few years from a slowdown in the construction and retail sectors, but “funding and liquidity remained sound, with deposit and loan growth roughly in line, and capital ratios solid”, Fitch rating agency said this summer.
The central bank’s governor, Ahmed al-Kholifey, said last month that he did not expect the IPO to affect liquidity in the Saudi banking sector, but that SAMA may revise its lending regulations to facilitate availability of liquidity to investors before the IPO.
SAMA and Aramco did not respond to requests for comment.
Saudi Arabia is pressing ahead with plans to sell between 1% and 2% of its oil company, the world’s largest, through a local listing, which might be followed by additional share sales locally and internationally.
Aramco has approached wealthy Saudi families in recent weeks as part of wider efforts to build a large investor base to achieve the $2 trillion valuation targeted by Crown Prince Mohammed bin Salman, two sources previously told Reuters.
The local listing – crucial to Prince Mohammed’s plans to wean the Saudi economy off its oil dependence – could raise more than $20 billion in its initial phase.
Aramco has been meeting analysts over the past few weeks to market the company ahead of the listing. Analysts’ reports are expected to be released on Oct. 20.
The company’s main advisers last week started pre-IPO meetings with potential investors in the United States, Europe and Asia, to gauge demand for the deal, two sources said.
An IPO prospectus in Arabic could be released to investors on Oct. 25 and an English one for the wider market on Oct. 27, the sources said.
This week, Fitch downgraded Aramco by one notch to an ‘A’ credit rating, citing last month’s attacks and rising geopolitical tensions in the region.
Riyadh has blamed adversary Iran for the attacks, a charge Tehran denies.
Aramco’s bonds fell after the rating announcement, which was widely expected as it followed a similar downgrade of the sovereign on Sept. 30.