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1.29 MB
Extraction Summary
1
People
5
Organizations
7
Locations
2
Events
1
Relationships
3
Quotes
Document Information
Type:
Financial research report / market analysis
File Size:
1.29 MB
Summary
This is a page from a Merrill Lynch research report dated June 30, 2016, titled 'GEMs Paper #26'. It analyzes the potential financial impact of increasing foreign ownership limits in Saudi Arabia and the hypothetical IPO of Saudi Aramco. The report cites a US$2 trillion valuation for Aramco (attributed to the Deputy Crown Prince) and projects potential capital inflows of over US$30 billion if included in the MSCI Emerging Markets index. The document bears a 'HOUSE_OVERSIGHT' stamp, indicating it was produced as part of a congressional investigation.
People (1)
| Name | Role | Context |
|---|---|---|
| Deputy Crown Prince | Government Official (Saudi Arabia) |
Referenced as the source for the hypothetical valuation of Saudi Aramco at US$2tn.
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Organizations (5)
| Name | Type | Context |
|---|---|---|
| Merrill Lynch |
Producer of the research report (BofA Merrill Lynch Global Research).
|
|
| Saudi Aramco |
Subject of potential IPO and valuation analysis.
|
|
| MSCI |
Morgan Stanley Capital International; entity managing the Emerging Markets (EM) index.
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|
| CMA |
Capital Market Authority (Saudi Arabia); mentioned regarding foreign ownership announcements.
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| House Oversight Committee |
Indicated by the Bates stamp 'HOUSE_OVERSIGHT_016157', suggesting this document was part of a congressional investiga...
|
Timeline (2 events)
Future (relative to 2016)
Relationships (1)
Report cites the Deputy Crown Prince's hypothetical valuation of the company.
Key Quotes (3)
"Saudi Arabia (according to local press and the NTP) is seeking a number of privatisations in the coming 24 months, including a potential IPO of Aramco."Source
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Quote #1
"using the Deputy Crown Prince hypothetical valuation of US$2tn for Saudi Aramco"Source
HOUSE_OVERSIGHT_016157.jpg
Quote #2
"Saudi Arabia would account for 4.1% of the MSCI EM index and likely attract cUS$31bn of inflows"Source
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Quote #3
Full Extracted Text
Complete text extracted from the document (2,208 characters)
Privatisations & ownership limits could increase weighting
However, our analysis of Saudi Arabia’s weighting could be significantly understated for two reasons, including: (1) our analysis currently uses a foreign ownership limit (FOL) of 0.2 (as previously guided by the MSCI). This could be understating Saudi’s weighting given the increase in foreign ownership introduced in the CMA’s announcement. Indeed, if we increased our FOL factor to 0.4, Saudi would be 2.8% of the MSCI and could attract US$21.3bn of inflows; and, (2) Saudi Arabia (according to local press and the NTP) is seeking a number of privatisations in the coming 24 months, including a potential IPO of Aramco. Inclusions of these companies would likely increase Saudi’s weighting in the MSCI EM index and thus attract higher inflows to the market.
However, our analysis of Saudi Arabia’s weighting could be significantly understated for two reasons, including: (1) our analysis currently uses a foreign ownership limit (FOL) of 0.2 (as previously guided by the MSCI). This could be understating Saudi’s weighting given the increase in foreign ownership introduced in the CMA’s announcement. Indeed, if we increased our FOL factor to 0.4, Saudi would be 2.8% of the MSCI and could attract US$21.3bn of inflows; and, (2) Saudi Arabia (according to local press and the NTP) is seeking a number of privatisations in the coming 24 months, including a potential IPO of Aramco. Inclusions of these companies would likely increase Saudi’s weighting in the MSCI EM index and thus attract higher inflows to the market.
Inclusion of energy assets could see Saudi accounting for 4.1% of MSCI EM
By way of example, we believe inclusion of Saudi Aramco in the Saudi market would profoundly affect the weighting of Saudi Arabia in the MSCI EM in our view. Indeed, if we were to replicate the analysis above using the Deputy Crown Prince hypothetical valuation of US$2tn for Saudi Aramco and a 5% inclusion factor (given 5% or less of Saudi Aramco would be listed according to interviews with the Deputy Crown Prince), Saudi Arabia would account for 4.1% of the MSCI EM index and likely attract cUS$31bn of inflows from passive and active funds. We note, our calculations are highly sensitive to the inclusion factor that MSCI would ultimately use (we assume 5%, in line with its estimated free float of 10% for example, would see Saudi Arabia accounting for 6.6% of the MSCI EM index.
By way of example, we believe inclusion of Saudi Aramco in the Saudi market would profoundly affect the weighting of Saudi Arabia in the MSCI EM in our view. Indeed, if we were to replicate the analysis above using the Deputy Crown Prince hypothetical valuation of US$2tn for Saudi Aramco and a 5% inclusion factor (given 5% or less of Saudi Aramco would be listed according to interviews with the Deputy Crown Prince), Saudi Arabia would account for 4.1% of the MSCI EM index and likely attract cUS$31bn of inflows from passive and active funds. We note, our calculations are highly sensitive to the inclusion factor that MSCI would ultimately use (we assume 5%, in line with its estimated free float of 10% for example, would see Saudi Arabia accounting for 6.6% of the MSCI EM index.
Chart 52: If energy assets were included, Saudi Arabia would be the seventh largest constituent of the MSCI EM, accounting for 4.1% of the index
■ CHINA
■ KOREA
■ TAIWAN
■ INDIA
■ SOUTH AFRICA
■ BRAZIL
■ SAUDI
■ MEXICO
■ RUSSIA
■ MALAYSIA (EM)
■ INDONESIA
■ THAILAND
■ PHILIPPINES
■ TURKEY
■ CHILE
■ POLAND
■ QATAR
■ UAE
■ COLOMBIA
■ PERU
■ GREECE
■ HUNGARY
■ EGYPT
■ CZECH REPUBLIC
■ CHINA
■ KOREA
■ TAIWAN
■ INDIA
■ SOUTH AFRICA
■ BRAZIL
■ SAUDI
■ MEXICO
■ RUSSIA
■ MALAYSIA (EM)
■ INDONESIA
■ THAILAND
■ PHILIPPINES
■ TURKEY
■ CHILE
■ POLAND
■ QATAR
■ UAE
■ COLOMBIA
■ PERU
■ GREECE
■ HUNGARY
■ EGYPT
■ CZECH REPUBLIC
Source: BofA Merrill Lynch Global Research, MSCI and DataStream
[Logo] Merrill Lynch
GEMs Paper #26 | 30 June 2016 47
HOUSE_OVERSIGHT_016157
GEMs Paper #26 | 30 June 2016 47
HOUSE_OVERSIGHT_016157
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