Aramco pits London against New York as Saudis pick IPO venue
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.