Aramco IPO – London or New York?

The flotation of Saudi Arabia’s state-owned oil firm, Saudi Aramco, has fixated investors for months now. It represents, potentially, the world’s richest initial public offering (IPO), and would be a major coup for one of the significant global finance hubs. The Saudi government plans to list in Riyadh, but sell shares on another exchange, in a process called a ‘secondary listing.’

While the likes of Tokyo and Hong Kong could be in the running, in reality the only two choices are London and New York. London, of course, has Brexit uncertainty hanging over it, but its appeal was recently enhanced with a $2 billion loan guarantee.

The regulator in London has recently proposed a change to the rules surrounding new listings, and this would make it possible for Aramco to trade on the premium segment, which gives a broader range of investors rather than its standard version. In addition, it would end the rule that requires sovereign-backed firms to list at least 25% of its shares. Aramco only plans to list around 5% of the company, so if this rule remains in place then it would have to remain in the standard segment.

Instead, New York may take the prize. Arguably it is still the global financial hub, despite London’s huge appeal. President Trump already has a rapport with the Saudi crown prince, who has recently been engaged in a power grab that has seen large number of royal family members and officials arrested. Aramco is one of the largest crude suppliers to the US, although the rise of shale gas and the cutbacks to the Organisation of Petroleum Exporting Countries (OPEC) production has diminished this so some extent. It also owns a refinery in Texas, which is the largest in the US.

For the US, the biggest risk is litigation. US laws allow terrorism victims to sue foreign governments that have been linked to attacks. The 9/11 attackers were Saudi citizens, and the possibility of court action diminishes New York’s appeal.

Overall, both London and New York have major appeal. In the final analysis, political considerations (and the need to maintain the close relationship between Riyadh and Washington) may trump London’s appeal. For whichever major financial hub wins the prize, the rewards could be significant, as liquidity increases, and other firms follow Aramco’s lead.