Saudi exchange to limit Aramco index weighting with cap

DUBAI (Reuters) - Saudi Arabia's Tadawul has introduced an equity index .TASI cap of 15% which is set to address concerns over the weighting oil giant Saudi Aramco will have when it lists on the exchange.

FILE PHOTO: Yasser al-Rumayyan, Saudi Aramco's chairman, and Amin H. Nasser, president and CEO of Aramco, attend a news conference at the Plaza Conference Center in Dhahran, Saudi Arabia November 3, 2019. REUTERS/Hamad I Mohammed/File Photo

State-owned oil firm Aramco is expected to list 1.5% of its shares this month in a deal which could raise more than $25 billion and top the record initial public offering (IPO) of Chinese retailer Alibaba on the New York Stock Exchange in 2014.

The Aramco IPO is seen as a test for the Saudi exchange, where the largest listing so far has been worth $6 billion.

“Any constituent whose index weight reaches or exceeds the threshold will be capped in accordance with the set limit,” Tadawul said in a statement on Monday.

Aramco is expected to have an initial weight of close to 10% in the Tadawul all-share index (TASI).

“This is a precautionary measure to assure investors regarding Aramco’s impact on the Saudi index in case of any further liquidation in the future or in case the stock price goes up,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

The cap would limit the risk of any security representing a large percentage of the index and becoming a major risk for the market, as well as limiting the index’s correlation to the oil price, he added.

The move is part of a broader update of Tadawul’s index methodology, including a revision of the free float shares calculation methodology.

The new measures will “ensure more balanced indices, which will accurately represent the movement of the market, enhance disclosures and transparency and minimize securities’ dominance,” Tadawul’s CEO Khalid Al Hussan said in a statement.

Tadawul said it had also applied a new “Fast Entry” rule allowing shares of IPOs to be included in the all-share index at the close of their fifth trading day.

Currently Al Rajhi Bank 1120.SE has the largest weighting on the TASI at around 16%, followed by National Commercial Bank (NCB) 1180.SE with 7% and petrochemical giant SABIC 2010.SE with 6.8%.

Aramco has received $44.3 billion in bids so far from institutional and retail investors for the IPO, lead manager Samba Capital said last week. Retail subscriptions ended on Nov. 28 while institutional investors have until Wednesday to submit their orders.

Reporting by Davide Barbuscia, additional reporting by Marwa Rashad; Editing by Alexander Smith, Kirsten Donovan