Aramco pits Lon­don against New York as Saudis pick IPO venue

Muscat Daily - - BUSINESS -

Dubai, UAE - Saudi Ara­bia aims to sell about five per cent of Saudi Aramco in an ini­tial pub­lic of­fer­ing (IPO) next year, and stock ex­changes from the UK to Ja­pan are vy­ing for what may be the world’s rich­est IPO.

The Saudi Ara­bia’s Crown Prince, Mo­hammed bin Sal­man, will soon de­cide where to sell the com­pany’s shares af­ter gov­ern­ment of­fi­cials heard a pre­sen­ta­tion on the list­ing process last week, ac­cord­ing to peo­ple with knowl­edge of the mat­ter. The king­dom plans to list on the Saudi stock ex­change in Riyadh and sell shares on at least one bourse out­side the coun­try. That choice pits the top global fi­nan­cial cen­tres, Lon­don and New York, against each other for a sale that could value the largest oil ex­porter at as much as US$2tn.

The Saudis and their ad­vi­sors want to pick a for­eign ex­change or ex­changes with sim­i­lar list­ing and reg­u­la­tory re­quire­ments to the Riyadh bourse, to avoid large de­vi­a­tions in pric­ing be­tween the mar­kets, ac­cord­ing to other peo­ple fa­mil­iar with the sit­u­a­tion.

Lon­don im­proved its chances when reg­u­la­tors over­see­ing the Lon­don Stock Ex­change (LSE) pro­posed rule changes last month that would make it eas­ier for gov­ern­ments to list their state-backed en­ti­ties, ac­cord­ing to the peo­ple with knowl­edge of the plans. The changes would al­low Aramco’s shares to trade on the LSE’s pre­mium seg­ment, with ac­cess to a wider pool of in­vestors than a stan­dard list­ing.

The pro­pos­als would also elim­i­nate a re­quire­ment that sov­er­eign-con­trolled com­pa­nies list at least 25 per cent of their shares to be el­i­gi­ble for the pre­mium seg­ment. That’s a big con­ces­sion to the Saudis, who have said they plan to sell about five per cent of the com­pany.

New York’s ap­peal to the Saudis as the fi­nan­cial hub of the world’s largest econ­omy is en­hanced by the re­la­tion­ship Prince Mo­hammed has cul­ti­vated with US Pres­i­dent Don­ald Trump. Aramco has been one of three big­gest crude sup­pli­ers to the US over the last four decades. The com­pany also owns the largest US re­fin­ery, a plant in Port Arthur, Texas, through its wholly owned sub­sidiary Mo­tiva En­ter- prises LLC.

Aramco sells two-thirds of its oil to Asia, with China one of its big­gest buy­ers. The com­pany has a re­fin­ing joint ven­ture in Fu­jian, China, and is in talks to start two more plants in the coun­try. Saudi and Chi­nese of­fi­cials agreed to look at US$65bn in po­ten­tial en­ergy and in­fra­struc­ture deals when King Sal­man vis­ited China in March. This close in­volve­ment could work in favour of a list­ing in Hong Kong, home to China’s largest bourse that ac­cepts IPOs by com­pa­nies based in other coun­tries.

China In­vest­ment Corp, the na­tion’s sov­er­eign wealth fund, could take part in an Aramco IPO, peo­ple with knowl­edge of the mat­ter said in March. Two of China’s state oil com­pa­nies also may buy shares in Aramco, ac­cord­ing to their se­nior ex­ec­u­tives.

Trad­ing links en­abling in­vestors in main­land China to buy shares listed in Hong Kong could fur­ther strengthen the case for Aramco to list in the ter­ri­tory.

Still, Hong Kong’s ex­change, like those in Tokyo and Sin­ga­pore, is smaller than mar­kets in New York or Lon­don. This raises the ques­tion of whether the Asian bourses could pro­vide enough in­vestor in­ter­est to value Aramco at the level the Saudis want, ac­cord­ing to the peo­ple fa­mil­iar with how the king­dom and its ad­vi­sors are as­sess­ing the list­ing op­tions.

Ex­changes in Tokyo and Sin­ga­pore also made ag­gres­sive pitches to Saudi au­thor­i­ties for the IPO, though nei­ther Ja­pan nor Sin­ga­pore con­sumes as much crude oil as China.

The Toronto Stock Ex­change (TSX) is also among the smaller con­tenders for the IPO, but the Cana­dian bourse has high­lighted the large num­ber of commodities com­pa­nies listed there. En­ergy and ma­te­ri­als stocks ac­count for about two-thirds of the TSX Ven­ture in­dex and a third of the S&P/TSX Com­pos­ite In­dex.

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