The wider impact of Saudi Aramco's IPO. Grounds for optimism?

Since November 9th the worlds of finance, energy and business journalism have been pouring over the prospectus for the largest IPO in history. Whilst the valuation question is driving many of the headlines, Saudi Aramco's 650-page investor document also provides some interesting insights into the wider long-term outlook for KSA and its development plans.

One notable point is the risk that oil demand may peak in the next 20 years. Compared to the alarming climate change stories that dominate the headlines, with calls for immediate transition away from fossil fuels, 20 years seems rather reassuring for potential investors. Note that this is a risk of a peak in demand and not no demand, which suggests that Saudi sees markets existing for its key revenue generator for many decades to come. Based on this what are the prospects for its wider development plans and opportunities for businesses interested in its non-oil sectors?

A successful IPO should strengthen confidence in the massive tourism-development plans announced over the last few years. We have noted the relatively low volume and value of domestic-project announcements at the recent FII conference, which may reflect external concern over Saudi's ability to underwrite and deliver the mega-projects it has made such noise about. Even though the cash amount the IPO will raise is small in relation to the investment required for its agenda, a positive outcome should create favorable conditions in the bond and other finance-raising markets for the country to fund its objectives.

In this scenario, we expect to see heightened confidence in KSA being able to pay its bills for foreign advice, expertise and products. Whether these are tech companies helping the government in its digital transformation, hotel brands putting their names on new properties on the Red Sea or entertainment sector players bringing joy to the masses, the country's ability to deliver, market and sustain major projects over the medium term should help maintain the level of international interest in the Kingdom.