British investors wary as LSE courts Aramco

NYSE execs to woo IPO

LONDON, May 10, (RTRS): While Britain’s stock exchange pulls out all the stops to woo Saudi Aramco, some leading British fund managers who would be among potential investors have expressed reservations about the oil titan’s corporate governance and valuation.

The Saudi government values the state firm at $2 trillion and plans to sell a stake of around 5 percent next year in what is expected to be the largest stock market listing in history. Global financial centres from London to New York and Hong Kong are vying for a piece of the action.

Sources told Reuters last week that the London Stock Exchange (LSE) was working on a new type of listing structure that would be more attractive for Aramco by allowing it to avoid the most onerous corporate governance requirements of a primary listing, without being seen as second class.

But even should the LSE win an Aramco listing, active fund managers based in London who would be among potential buyers of shares said their participation was far from guaranteed, with many expressing concerns about the level of influence investors could command as well as corporate transparency.

Trevor Green, head of UK equities at Aviva Investors, the fund arm of British insurer Aviva, cited “very big governance issues” around how much independently verified data about the company’s oil reserves would be given, its board structure and the small portion of the company being listed. “At this stage we would struggle (to take part)... governance is a key part of our process and this is going to break it in a lot of ways,” Green said.

Doubted

Clive Beagles, fund manager at JO Hambro, said he would likely look at the Aramco listing but doubted he would participate “because of those issues about being such a minority investor relative to people that you’d have very little influence over”.

Saudi Aramco declined to comment for this story.

The oil giant has brought in investment banks, auditors, lawyers and management consultants as well as investor and public relations firms to help it restructure, go over its accounts and advise on changes it needs to make to its corporate governance to become a publicly listed company.

Governance is an increasingly important issue for asset managers as investors such as pension schemes and insurance companies are increasingly pushing them to hold companies to account more and prevent bad decision-making.

Companies looking to list on LSE with a “premium” listing need to float at least 25 percent of their equity. A “standard” listing allows a company to list under less-strict governance rules, although it is not then eligible for inclusion in the FTSE index and is considered a second-tier listing, something that would be less attractive to Aramco.

Given that, sources have told Reuters the exchange is working on a new type of listing structure to allow Aramco to float less than 25 percent without being classified as a standard listing. A New York Stock Exchange (NYSE) delegation will visit Saudi Arabia in late May to try to lure a listing by state oil giant Saudi Aramco, industry sources familiar with the matter said.

Largest

The visit will follow a similar trip to Riyadh last month by London Stock Exchange (LSE) CEO Xavier Rolet, as top exchanges around the world vie to win slices of Aramco’s initial public offering, expected to be the largest in history.

Aramco plans to list about 5 percent of its shares, mostly on the Saudi stock market, the Tadawul, and the rest likely on one, two or even three international exchanges, industry sources have previously said.

Saudi officials have said the IPO, planned for 2018, will be worth about $100 billion.

Both Aramco and the NYSE, which is owned by Intercontinental Exchange Inc, declined to comment.

The NYSE delegation will come to Saudi Arabia shortly after a visit by US President Donald Trump, the sources told Reuters, although they said the two trips were scheduled independently and would occur separately. Trump is expected to begin his maiden international trip in Riyadh on May 19 before travelling to Israel, the Vatican, Brussels and Sicily. He will focus on building support for the fight against Islamic State.

The NYSE is the world’s largest stock market and counts oil majors like Chevron and Exxon Mobil among its listings, but faces competition from other exchanges offering regulatory flexibility and access to Asian investors.

New York, London, Hong Kong, Singapore, Tokyo and Toronto are all seeking pieces of the offering, with Hong Kong currently the frontrunner among bourses in Asia because of its strategic links to key Saudi oil importer China.