With the Saudi stock exchange (Tadawul) suffering bear markets in two of the past four years, it is little surprise that engineering firms are cautious about a possible requirement for them to float on the kingdom’s bourse by 2015.
National oil company Saudi Aramco is effectively asking some of the world’s largest contractors to consider local initial public offerings if they want to win long-term contracts within the country.
Aramco wants to reach a position where it can offer all the major contracts on its mega-projects to international companies that create joint ventures with local firms. The multinationals employ a tiny fraction of the domestic workforce and Aramco wants them to do more to train Saudi nationals, leaving a legacy beyond their work.
With $60bn to be spent over the next five years and project opportunities drying up elsewhere, contractors are for the moment playing ball with Aramco’s shift in strategy.
Privately, however, few international firms expect the flotations to go ahead. While confidence in the Tadawul has started to recover as a result of the global rally in equities, the wider Saudi business community has work to do to rebuild its reputation.
A dispute between two of the country’s largest conglomerates, the Saad Group and Ahmad Hamad al-Gosaibi & Brothers, over allegations of fraud involving billions of dollars has knocked sentiment and raised questions over disclosure in the market.
Large Western contractors are not willing to risk their reputations by listing in a volatile market that may only contribute a small share of their global profits.
Aramco should back down from its rigid plans to push international contractors into an unwanted appearance on a foreign stock exchange.
If not, it will find that many otherwise suit-able partners will look elsewhere.