Saudi central bank closely monitoring Aramco IPO, ready for a cash crunch

Saudi Arabia's central bank is ready for any liquidity squeeze from Saudi Aramco's initial public offering (IPO) and is closely monitoring local banks, its governor said, after heavy demand for loans to buy the stock.

Aramco's long-awaited listing on the Saudi Arabian stock exchange is due on Wednesday, completing the largest IPO on record and raising $25.6 billion from retail and institutional buyers who took on debt to back their orders.

"We don't rule out that there might be squeeze of liquidity later on, that's why I am ready and stand ready to intervene," Ahmed al-Kholifey told Reuters.

Saudis had clamoured to own part of the "crown jewel" of the world's top oil exporter in the lead up to its IPO, with Aramco's institutional tranche 6.2 times oversubscribed, while more than 5 million individuals subscribed to a retail tranche.

The Aramco IPO is the centrepiece of the Saudi crown prince's plans to diversify the economy away from a reliance on oil, as the money will be reinvested by the Saudi Public Investment Fund (PIF) to promote growth in other sectors.

Saudi banks extended huge loans for clients wanting to maximize their participation in the IPO, with some expanding lending to four times the official limit, sources have previously told Reuters.

During the IPO process, the loan-to-deposit ratio (LDR) at some banks had exceeded a 90% "soft guideline" set by the regulator, but the ratio improved after the allocation process ended, Kholifey said in an interview.

"So far no bank has come to ask for liquidity from the central bank. We are ready to intervene in case there is a squeeze of liquidity but most of the indicators right now are not worrying," Kholifey added.

MONITORING TEAM

The central bank has set up a team specifically to closely monitor all indicators in the banking system during the IPO process, and it held meetings on a daily basis.

"I don't think in the near future they will settle, we have to keep monitoring the situation until we see things are normal, especially the LDR," he said.

Saudi corporates snapped up the biggest percentage of allocations to the Aramco IPO at 37.5% and Saudi government institutions were allocated 13.2% of the institutional tranche, the latest figures issued by the deal's lead bank showed.

Kholifey said that less than 2% of retail subscriptions were leveraged, and most of the bank financing went to high-net-worth individuals and institutional buyers.

He expects most of the IPO proceeds to be invested locally by the PIF, given that most of subscription were internal.

Riyadh scaled back its original IPO plans, scrapping an international roadshow to focus on marketing Aramco to Saudi investors and wealthy Gulf Arab allies. It has remained silent on when or where it might list Aramco stock abroad.