Saudi to limit Aramco index weighting with cap

Saudi Arabia’s Tadawul has introduced an equity index cap of 15 per cent which is set to address concerns over the weighting oil giant Saudi Aramco will have when it lists on the exchange. State-owned oil firm Aramco is expected to list 1.5pc of its shares this month in a deal which could raise more than $25 billion and top the record initial public offering (IPO) of Chinese retailer Alibaba on the New York Stock Exchange in 2014.

The Aramco IPO is seen as a test for the Saudi exchange, where the largest listing so far has been worth $6 billion. “Any constituent whose index weight reaches or exceeds the threshold will be capped in accordance with the set limit,” Tadawul said in a statement yesterday. Aramco is expected to have an initial weight of close to 10pc in the Tadawul all-share index (TASI). “This is a precautionary measure to assure investors regarding Aramco’s impact on the Saudi index in case of any further liquidation in the future or in case the stock price goes up,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

The cap would limit the risk of any security representing a large percentage of the index and becoming a major risk for the market, as well as limiting the index’s correlation to the oil price, he added. The move is part of a broader update of Tadawul’s index methodology, including a revision of the free float shares calculation methodology.

The new measures will “ensure more balanced indices, which will accurately represent the movement of the market, enhance disclosures and transparency and minimize securities’ dominance,” Tadawul’s CEO Khalid Al Hussan said in a statement. Tadawul said it had also applied a new “Fast Entry” rule allowing shares of IPOs to be included in the all-share index at the close of their fifth trading day