Saudi Aramco IPO: Here's how you can invest in world's biggest public offer

The world’s biggest public float, the initial public offer (IPO) of Saudi Aramco opens on November 17 with the final share price being determined on December 5 – a day after the issue closes for institutional investors. Individual investors, however, will only be able to apply till November 28.

Saudi Aramco plans to sell 0.5 per cent of its shares to institutional investors, individual Saudis and other Gulf nationals. Even then, the sale would make the issue the biggest in the world. Following the two-step inclusion process, Saudi Arabia currently ranks the 9th biggest market (2.8 percent weight) within the MSCI Emerging Markets index.

Being an Indian citizen, you can still invest in the IPO. One way to do is to use the government’s Liberalised Remittance Scheme (LRS). Under this, domestic investors are allowed to remit US $250,000 during a financial year to another country, which can be used to buy stocks and debt instruments in overseas markets. 

However, experts advise investing through professional wealth managers. Fund houses such as Morningstar, Edelweiss, Invesco Mutual Fund, DSP, ICICI Prudential Mutual Fund, Parag Parikh Financial Advisory (PPFAS) and Franklin Templeton offer products that help Indian investors take exposure to global equities. PPFAS, for instance, already has foreign companies such as Google, Alphabet, Amazon and IBM in their portfolio.

“LRS is one way of going about it. The best thing, however, would be to go through wealth management companies or institutional brokers that have first-hand knowledge of investing abroad,” suggests G Chokkalingam, founder and managing director at Equinomics Research.

So, should you invest in the IPO?

A quick analysis of the stocks of related global listed companies reveals an interesting picture. Over the past 10 years (since 2009) only a handful of leading oil & gas exploration companies have delivered stellar gains. While shares of Lukoil (up 265 per cent) and Reliance Industries (200 per cent) are among the top gainers. In contrast, Chevron and Gazprom (up around 52 per cent each) and Royal Dutch Shell (up 26 per cent) only gave modest returns on an absolute basis, Bloomberg data show. 

Indian oil refining and marketing companies (OMCs) – Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation Limited (HPCL), Indian Oil Corporation (IOCL); Gujarat State Petronet and gas transporter GAIL India gained 41 per cent to 521 per cent during this period on an absolute basis, shows data.

“All over the world, solar and thermal energy are better placed as compared to the conventional oil-related sector. In India too, solar power tariffs have crashed from Rs 17 to Rs 18 per unit a decade ago to around Rs 2 per unit. There is a structural change which making alternate fuels more affordable. The second change has been China moving away from manufacturing to service-led growth. There is focus on electric vehicles. All this will eat into the fortunes of oil and gas – based players over the long run,” Chokkalingam says.

A K Prabhakar, head of research at IDBI Capital is also not too bullish on the road ahead for the oil & gas sector. A recent report by BNP Paribas Securities cut crude price realisation estimates to $60/56/59/barrel for FY20/21/22 from $65/63/66/barrel on weakening global demand for crude oil.

“Oil prices are likely to hover between $50 – 70 per barrel. That said, there are a number of alternatives available to fossil fuel now and their use will only grow with time. This can have an impact on the fortunes of oil & gas companies in the long run,” Prabhakar says.