Exchanges Vying For Saudi Aramco IPO
Exchanges around the world have been vying for a piece of the Saudi Aramco’s initial public offering (IPO), which many expect will be the largest flotation in history. The New York Stock Exchange (NYSE), the London Stock Exchange (LSE) and the Singapore Exchange (SGX) have all been listed as possible venues for this IPO, which could involve more than one marketplace and value the Saudi Arabian oil giant at more than $2 trillion.
The final location where this company decides to sell its shares could affect not only the market value of these securities, but also the power that Saudi Aramco’s new investors have over the company’s operations and business dealings.
London’s bold efforts
London, which is seen as one of the top contenders, has been actively courting the company, with British Prime Minister Theresa May and LSE CEO Xavier Rolet recently traveling to Saudi Arabia in an effort to convince Saudi Aramco to hold its IPO on the LSE, according to Bloomberg.
The stakes are high for London, which May wants to promote as a financial center post-Brexit. May and Rolet both met with Khalid Al-Falih, the nation’s energy minister and also the chairman of Saudi Aramco’s Board of Directors, a U.K. government official familiar with the matter told Bloomberg.
While Rolet traveled to the Middle East to advocate for the LSE, his exchange has also been developing a new type of listing structure that would make it more enticing for Saudi Aramco to list its shares there, individuals familiar with the matter told Reuters.
Currently, most companies that trade on the LSE must adhere to corporate governance rules that grant extra clout to minority shareholders on matters such as independent directors and list at least 25% of their shares in a free float, unless the Financial Conduct Authority (FCA) provides an exception.
However, Saudi Aramco wants to list no more than 5% of its shares in the primary offering, and the LSE has been working to create a new listing model that would allow the oil giant to circumvent the most strict corporate governance rules without having the listing being viewed as second rate.
Saudi Arabia and the U.K. have always had deep ties in terms of commerce, and the strong relationship between the two nations could tip the scales in favor of Saudi Aramco listing on the LSE.
The Kingdom is the European nation’s top trading partner in the Middle East, according to the Saudi British Joint Business Council. At the time of report, more than 6,000 U.K. companies were exporting goods to Saudi Arabia.
When May visited Saudi Arabia in April, she voiced her hopes that this trip would “herald a further intensification in relations between our countries and deepen true strategic partnerships.”
A decision by Saudi Arabia to list its shares on the LSE could help achieve this very goal.
NYSE - another front runner
While London has been working hard to ensure that Saudi Aramco chooses the LSE for its IPO, some believe that the NYSE is the most likely choice for the oil giant. Arun Kant, CEO and CIO at Singapore-based investing firm Leonie Hill Capital, recently estimated that Saudi Aramco had a 55% chance of listing its shares on the New York-based exchange.
Kant, who projected that company’s odds of listing on the LSE were 30%, pointed to his proprietary artificial intelligence system when providing these figures.
There is a definite benefit to holding an IPO in the United States, as “Many Americans won't buy stocks unless they trade on the NYSE or NASDAQ,” said Holmes Osborne, CFA, principal of Osborne Global Investors, Inc. “Saudi Aramco would be smart to make their stock easily accessible to the U.S. individual investor. If not, it could trade at a slight discount to its peers, as is often the case with some international stocks that don't trade in the U.S.”
However, not everyone offered the same point of view, as Robin Mills, a former Shell (LON:RDSa) executive, told CNBC that a NYSE listing would be “too legally and politically risky.” Chances are that the oil giant will list its shares on the LSE and possible an Asian exchange, said Mills, who currently serves as CEO of energy consulting firm Qamar Energy.
Fereidun Fesharaki, founder and chairman of consulting firm Facts Global Energy, gave CNBC a firmer response. "New York is absolutely out due to regulatory restrictions. It is not a maybe, it is definite."
Asian alternatives
While listing on the NYSE or LSE could provide Saudi Aramco with access to more traditional financial markets, SGX has emphasized that it could provide the company with “unique access to Southeast Asia's markets.”
In appealing to Saudi Aramco, Singapore has touted its status as an oil hub, as figures provided by International Enterprise Singapore show that a strong majority of the top 30 oil and gas companies have some presence in the city.
Singapore has considered offering several incentives in an effort to entice Saudi Aramco, individuals with knowledge of the matter recently told Bloomberg. The Southeast Asian nation has looked into proposals involving matters such as greater collaboration with the Saudi government on investments and inviting one of its state-owned investment firms to play a key role in Saudi Aramco’s IPO, they said.
Japan is also vying to be a part of the Saudi Aramco IPO, getting its head of state involved by having Prime Minister Shinzo Abe ask Saudi Arabia’s King Salman to support a listing of the company’s shares in Tokyo. Salman indicated the Kingdom would investigate this possibility, as he wants the Asian nation’s investors to buy shares of the oil giant.
Hidetoshi Nagata, head of global listings at the Tokyo Stock Exchange (TSE), also spoke to this situation, telling CNBC that “We have met with Aramco's people last year” and adding that “We believe that they are quite interested in TSE.”
While Abe and Nagata might seem optimistic, many market experts were more sanguine on Saudi Aramco’s prospects of listing on the TSE. The oil giant probably won’t list shares there because of several reasons, including investors who take greater interest in other sectors, stiff competition and even yen volatility, according to bankers and lawyers who spoke with Reuters.
A unique offering
Thanks to its enormous size, Saudi Aramco’s IPO will be no ordinary offering, which means that the Kingdom will likely consider a wider range of factors than usual when determining the flotation’s final venue. The Kingdom’s new economic diversification plan relies heavily on the IPO’s success to generate the capital necessary to further liberalize the Saudi market. Therefore, the offering’s final venue should be seen as a harbinger for Riyadh’s future economic priorities.