The world’s biggest share sale would find a natural home on the world’s biggest market — but there are other factors at play that could have prompted last weekend’s presidential intervention.
Where does the initial public offering (IPO) of Saudi Aramco stand after the dramatic weekend intervention by President Trump in support of attempts by the New York Stock Exchange (NYSE) to stage the record-breaking IPO?
Even by his own standards, it was an extraordinary tweet from the president. He said he would “appreciate” it if the Kingdom chose the NYSE rather than the other range of options it is considering. That is the transactional language of a businessman president, and suggested Trump would show his appreciation in some way if Saudi Arabia went for the NYSE.
“Important to the United States!,” he exclaimed, underlining the historic significance of the Aramco IPO, which at $100 billion is set to be the biggest in history and four times the size of the previous record holder, Alibaba of China, also on the NYSE, in 2014.
It was not just the language of the tweet, but the timing too. The president has never publicly spoken about the Aramco IPO before, though one must assume there were top-level conversations about it during the presidential visit to Riyadh in May.
But what made him hit the keyboard at that particular time? He was in Hawaii en route to Japan on the first leg of an 11-day visit to several Asian capitals, including Beijing in China. The tweet took place the same day as the president had a phone conversation with King Salman of Saudi Arabia, during which Trump also mentioned his desire for the Aramco IPO to go to NYSE.
Thomas Farley, the NYSE president, had been in Riyadh the previous week at the Future Investment Initiative (FII), where he emphasized that the prospect of Aramco floating on NYSE was still very much on his agenda. Jared Kushner, the president’s son-in-law and Middle East adviser, was also reportedly in Riyadh about the same time, though not spotted at the FII.
It could be that either or both men had a word with the president on their return, and put the subject of the Aramco IPO on his mind.
But all this begs the question: Why did Farley, Kushner and Trump think it was time to intervene on behalf of the NYSE?
In September, I visited the trading floor of the NYSE, and it was apparent from conversations with traders and officials that not only would they welcome Aramco on the Big Board, but they were pretty sure they would get it too, for purely practical investment reasons.
The biggest IPO needs big liquidity, and it can get that best on the world’s biggest exchange. The London Stock Exchange — the closest rival in the contest to stage the IPO — is roughly 20 percent the size of the NYSE, and in any case the British investment community seems unsure that it would want the IPO. The market authorities, regulators and some advisers say yes, while some of the more politically-correct members of the investment community say no.
But there were also other reasons for Aramco to look at other options to an NYSE listing, as it emerged the company was considering a possible plan to sell a stake to Chinese investors, as well as a bid by the Riyadh stock market, the Tadawul, to stage the IPO “exclusively” in Saudi Arabia.
The Justice Against Sponsors of Terrorism Act ( JASTA) has been mentioned time and time again as a big impediment to a New York listing, but some analysts do not consider it a deal-breaker. There has never been any suggestion of Aramco involvement in terrorism financing, and even if an action were brought it would be tied up in the Manhattan courts for years, maybe decades. Aramco can afford to hire New York’s finest legal minds in its defense.
In addition, Saudi Arabia has plenty of other assets in the US — like more than $110 billion worth of Treasury Bills and a lot of upmarket real estate — that are not considered to be under threat from JASTA litigation. If Aramco was worried enough by JASTA to decide against an NYSE listing, it might just as well pull out of all its US investments.
American analysts have identified another reason why Aramco might be worried about New York. Currently in the in-tray of the New York State Attorney General Eric Schneiderman is an investigation into Exxon Mobil, the biggest oil company in the US and the one Aramco likes to regard as the leading member of its “peer group.” Exxon is listed on NYSE.
The authorities want to know if Exxon knew more than it has let on about the effects of climate change over the years, and whether it misled shareholders, regulators and customers about the damaging effects of burning fossil fuels.
Exxon has to hand over 39 years’ worth of documents and records in the case, which is being billed as the energy equivalent of the health actions against Big Tobacco which eventually cost the cigarette companies billions.
Aramco’s lawyers must be well aware of this case. If Aramco chooses New York, it could also end up enmired in a problem such as that faced by Exxon. Nobody in the Kingdom would relish the prospect of having to divulge decades of secret Saudi records about its most important company.
The president too must know about the case. Not only is he a convinced climate-change denier, but his Secretary of State Rex Tillerson was at Exxon for the period under investigation and its CEO for 10 years from 2006.
None of this automatically rules out NYSE from the Aramco IPO, any more than JASTA legislation does. But maybe it helps to explain Saudi Arabia’s hesitation in opting for the obvious market, New York, for the IPO, and why the American president decided to intervene — personally with King Salman and publicly via Twitter — in the Aramco saga.
Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai
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