Stocks

Why Investing in Saudi Aramco’s IPO will be a pipe dream for Indian investors

KS Badri Narayanan Chennai | Updated on November 14, 2019 Published on November 14, 2019

We explain why NRIs or PIOs in Gulf countries can easily invest in Indian markets but it’s not the same for citizens here looking to invest there

Saudi Aramco has announced plans to go public on Sunday, November 17, in what is touted to be the world’s biggest public issue. It is expected that Aramco will become the world’s largest company by market value, well above Apple, Microsoft and Amazon.com.

However, Saudi Aramco, the world’s largest integrated oil and gas company, wholly owned by the Government of the Kingdom of Saudi Arabia has revealed its intention to proceed with an initial public offering on the Main Market of Tadawul, the local stock exchange rather than in Western markets such as the New York Stock Exchange or the London Stock Exchange.

The company is likely to announce the price range on November 17 and the listing of the shares on December 11.

Aramco could raise as much as $20-40 billion, according to global media. A deal above $25 billion would top the record IPO of Chinese retail titan Alibaba on the New York Stock Exchange in 2014.

Limited chances for Indian investors

So, what are the chances of Indian investors investing in the ‘biggest-ever’ IPO?

Currently, domestic investors are allowed by the Reserve Bank of India to remit up to $250,000 per financial year (April-March) under the Liberalised Remittance Scheme (LRS). This amount can be used for specific current account or capital account transactions, which include, among others, buying equity and debt securities listed abroad.

Investors keen to invest in overseas equity markets need to tie up with foreign brokers or route their trades via domestic brokers who have a tie-up with foreign brokers. A few domestic broking houses such as ICICI Direct and HDFC Securities have tie ups with US-based foreign brokers. So, for domestic investors, it is possible to access the US markets through these brokerages. However, none of them have similar tie-ups with brokerages in other geographies, especially Saudi Arabia.

In fact, some of the domestic brokerages have branches in Gulf countries catering to the need of NRIs or PIOs to invest in Indian markets but not vice-versa.

The other route for resident Indians is via domestic mutual funds/ETFs or global mutual funds/ETFs that in turn invest in emerging markets or Arab markets or in global large-cap stocks. However, most domestic funds have the mandate to invest in the US markets with only a few such as Kotak Global Emerging Market Fund and Franklin Asia Equity eligible to invest in the Aramco IPO. Investors wishing to opt global funds can only apply through the brokerage route.

Indian investors therefore have very limited chances to participate in Aramco’s IPO. However, if the company lists in Western markets, desi investors may have a chance to buy them later.

Published on November 14, 2019
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