DUBAI: London has some very definite advantages in the contest to stage any global element of the forthcoming initial public offering of Saudi Aramco, but whether Saudi Arabian policymakers will be convinced that the UK capital is the place for the flagship share sale — potentially the biggest IPO in history — remains to be seen.
So strong is the claim of the London Stock Exchange (LSE) that for a while it looked like a straight two-horse race between it and the much bigger New York Stock Exchange for the prestigious and money-spinning offering.
That has been complicated over the past few months by the fact that other alternatives have emerged to a big global IPO: An “exclusive” offering on the Tadawul in Riyadh; the emergence of rival venues like Hong Kong and the other New York exchange Nasdaq; and the possibility of a private sale of shares to Chinese or Russian investors; or several combinations of these options.
But London is still in the race, and the official visit by Saudi policymakers this week could be a final opportunity to “kick the tires” of the LSE as a suitable venue for arguably the most important single transaction in the Kingdom’s history. LSE officials can advance several plausible arguments why it should stage the Aramco IPO.
David Hodson, veteran oil executive and financier and managing director of Dubai-based Blue Pearl Management, said: “The big thing London has going for it is that it is not New York. It is a less aggressive investment venue in all respects.”
This was echoed by a senior American investment banker, speaking on condition of anonymity, who said: “New York presents a range of problems, with Sarbanes-Oxley (US investor protection laws), as well as JASTA (anti-terrorism financing legislation) and the whole system of class actions.”
It has become almost accepted wisdom that Aramco would find itself enmired in litigation if it were to list on Wall Street. Although there are some who do not think this is necessarily the case — pointing to the hundreds of billions of dollars of Saudi assets in the US so far left untouched by the hungry lawyers of Manhattan — there is a general feeling, shared by some of Aramco’s advisory team, that listing there would just be asking for trouble.
“The London legal system is different in many respects,” said the banker. There is no British equivalent of the JASTA laws, disclosure and regulatory requirements are looser (especially for oil companies) and, while there is a system of ‘no win, no fee’ litigation, it is not as well-organized or aggressive as in the US, with its armies of class action lawyers.
The gentler legal and regulatory rules in the UK reinforce another advantage London has: It badly wants, even needs, to stage the IPO. Certainly, listing Aramco would talk to the post-Brexit narrative, which sees the world outside the EU as a gigantic opportunity for Britain.
Anti-Brexit campaigners would maintain that this is delusional, but if LSE won Aramco it would certainly allow the British government to claim that there is indeed life after the EU, and advance its cause to continue to be regarded as the capital of the European financial scene.
City veteran Martin Gilbert, co-chief executive of Standard Life Aberdeen, said: “It would obviously be a big and welcome coup if the UK was successful given the competition.”
London has other attractions too. It is not as big as New York — the two exchanges there has a combined market capitalization more than six times that of LSE — but it has a reputation as a truly global exchange, especially reflecting the commodity and energy sector. For example, two of the big members of Aramco’s peer group — BP and Shell — are listed on LSE.
David Ramm, the corporate partner at the London office of global law firm Morgan Lewis, believes London has an advantage in its international appeal. “The LSE reaches a broader and more diverse global network of potential investors than any other exchange, including New York,” he said.
“I suspect that there may also be a view at Aramco that the LSE and its investors may currently be more receptive to foreign listings, especially from the Middle East, than more domestically or the US focused exchanges,” Ramm added.
The London market authorities have gone out of their way to make the LSE more receptive. Last year the regulators proposed to introduce a new category of listing on the market, dubbed the “sovereign IPO,” as a way of allowing governments and other state-linked investors to issue and trade shares on international exchanges without adhering to stricter IPO rules on related party transactions and governance.
While these proposals met with some criticism from a portion of the London investment community and politicians — on the grounds that London was lowering its governance standards to accommodate the Saudis — the British government, the regulators and most financial professionals would welcome the changes if they were to attract the biggest IPO in history.
The changes required for the “sovereign IPO” regime have not yet been finally agreed, but any hint that Aramco was seriously leaning toward London would likely hurry them through without too much delay.
Ellen Wald, Middle East expert and author of upcoming book “Saudi Inc”, said: “The flexibility the LSE has shown will likely appeal to Aramco. The LSE would make sense as one of the exchanges for an Aramco listing because it is a big, stable and prestigious exchange with access to a large number of global investors and capital.
London has presented a persuasive investment case for why Aramco should chose it rather than any other global venue. But in the end, other factors — like geopolitical and foreign policy considerations, as well as personal relations between top policymakers — are just as like to decide the venue for the Aramco.
Hodson summed it up: “The final decision on where to list will be as much a political and strategic call as a financial one.”