Aramco eyes HK for reported $2.5trn IPO

Added 10th May 2016

Could a high profile listing help the depressed Hong Kong market, which is trading slightly above its 2008 low?

Aramco eyes HK for reported $2.5trn IPO

The Saudi oil giant is planning a triple listing in London, Hong Kong, and New York, The Telegraph reported.

By listing on the three markets, Saudi authorities hope China's Sinopec, US-based Exxon Mobil and UK-based BP will take strategic stakes in Aramco, the publication said, adding that the listing is expected to happen in 2017 or 2018 the earliest.

The IPO plan indicates that the Saudi Arabian oil company needs to strengthen cash flow, as its business has been impacted by sustained oil price weakness, Alvin Cheung, associate director at Prudential Brokerage, told FSA.

However, the size of the IPO has not yet been determined, so it is not possible to say whether it would be a boost to Hong Kong's depressed stock market.

“As the reported date of Aramco’s IPO is not expected to happen within this year, I don’t think this would have any immediate impact on Hong Kong equities,” Cheung said.

Cheung said the Hang Seng Index is currently trading at only 8.9 times price-to-earnings ratio, lower than its historical average of around 12 times.

The index traded at 24.2x in October 2007 when it hit its historical high and 9.18x in October 2008 amid the global financial crisis.

“We have seen a very weak response from investors toward IPOs recently," he said.

For example, investors are not keen to invest in the HK$1.86bn ($240m) IPO from Yadea Group, which is China’s largest electric two-wheel vehicle manufacturer, he said.

In 2014, Hong Kong lost the mega IPO of Alibaba Group to the New York Stock Exchange. Alibaba went on to raise $25bn in its IPO on the NYSE, becoming the world’s largest stock market flotation ever.

In 2015, IPOs in Hong Kong raised $31.8bn, the highest amount globally, according to the exchange. IPO listings were driven by mainland companies. However, China’s slowing growth, as well as currency and debt concerns have contributed to a lackluster market so far this year.

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