Investor Debt Is A New Concern For Saudi Regulators As Aramco IPO Approaches

Ever since Saudi Arabia announced it was planning an IPO for its national oil company, Saudi Aramco, the expectation has always been that Saudi investors would buy into the IPO. After all, the Saudi oil industry has long been seen as Saudi Arabia’s crown jewel.

As Aramco finally approaches its initial public offering on the Saudi stock exchange, Tadawul, reports are that Saudi Arabia is expecting millions of citizens to take on debt in order to buy shares in Aramco.

The problem for Saudi Arabia is that it has seen this once before. In the early 2000s there was a great deal of hype in Saudi Arabia surrounding the Saudi stock market. Many Saudi citizens invested heavily in Tadawul, not unlike Americans right before the stock market crashed in 1929. Saudis had taken out loans to buy stock on the Saudi exchange, Tadawul. This inflated the prices of stocks on Tadawul, which eventually crashed and caused economic pain for the country in 2006.

Aramco is a stable company and has been operating for many, many years so the situation is not entirely the same as when Saudis bought into much smaller Tadawul listed companies at the beginning of the 21st century, yet, if 6-7 million Saudis (from a population of just over 20 million) are expected to buy shares in Aramco, it could leave the country’s economy susceptible to fluctuations in Aramco’s share price caused by something as simple as a drop in the price of oil.

Alternatively, the value of Aramco shares could drop significantly if Saudi citizens need to cash out based on economic problems in the country.

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