The Strategist

Saudi Aramco is hesitating between New York and London

06/15/2017 - 14:44

Signing of a $ 350 billion-worth arms trade agreement between Saudi Arabia and the United States may not be sufficient to convince the Saudis that the initial placement (IPO) of the Saudi company Aramco, which is expected to be the largest in the history of the markets, should be held in New York.

Saudi Aramco’s leaders are pushing the King of Saudi Arabia and his son, Crown Prince Mohammed bin Salman, to place the shares on the London Stock Exchange.

The executives believe that listing in the US will expose the company to more significant legal risks, including potential lawsuits involving shareholders. However, the Royal Court of Saudi Arabia approves the New York Stock Exchange, according to people familiar with this issue, in part because of the long-standing political ties of the kingdom with the United States, and also because the US market is the deepest pool of capital in the world.

Listing in New York along with Saudi exchange Tadawul has long been the preferred option for Prince Mohammed, who sees the IPO as a push to restore and diversify the country's economy.

After the IPO, Saudi Aramco can increase its capital by $ 2 trillion. Such listing can attract foreign investors who want to get a piece from the largest oil producer, and this interest will generate large volumes of trade, vital for any stock market. The final decision on the venue is expected next month, the WSJ reports, again referring to one of the anonymous sources. The newspaper’s sources told that the decision on the placement was originally expected before the Islamic month of Ramadan, which began in late May.

Royal London Asset Management, which manages pension savings, believes that Saudi Aramco’s IPO in London is "unacceptable," since this would require a change in the exchange’s rules.

In 2018, the Saudi authorities intend to sell up to 5% of the state oil company’s shares during the IPO and invest the proceeds in other industries in order to diversify the country's economy. The company is expected to be valued at 1 to 2 trillion dollars. The initial public offering is planned to be held in Riyadh and at least one foreign exchange. In 10 years, share of the company's shares in public circulation will be brought to 49%.

However, the rules of the London Stock Exchange suggest placement of more than 25% of a company's shares. Thus, regulators seek to ensure that the stock exchange has the number of shares of the company sufficient to maintain their liquidity. For companies that can prove that their shares will be liquid even when a smaller stake is placed, an exception can be made.

Ashley Hamilton Claxton, Corporate Governance Manager at Royal London Asset Management, believes that the rules should not be changed. She told the BBC: "It would be highly inappropriate to change the listing rules for the sake of placing this large company. This would bring a lot of money to investment bankers and consultants, but would give not much to those who save for retirement, and we primarily think about them". The Association of British Insurers agrees with it, having stated earlier that there should be no exceptions to the rules for placing shares on the London Stock Exchange.


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