New York and London battle for Saudi Aramco IPO

New York and London are locked in a frantic race to be the main international listing venue for Saudi Arabia’s initial public offering of its state oil company, emerging as clear frontrunners in what is set to be the world’s biggest ever flotation.

Executives from the New York Stock Exchange and London Stock Exchange have held talks with Saudi Aramco, the state group valued at as much as $2tn by officials in Riyadh, according to people with knowledge of the matter.

Both London and New York are viewed by Saudi officials, Aramco executives and advisers on the IPO as the only two venues with the breadth of global investors, experience and liquidity to lead an international listing of this size. Both are now structuring their pitches believing they are a favourite.

“This is clearly not a normal IPO,” said Nathanaël Mauclair, co-founder of Aldebaran Global Advisors and a former managing director of international listings at NYSE Euronext. “Given the size of this transaction I would advise them to shoot for the moon and do as many listings as possible.”

NYSE, LSE and Saudi Aramco all declined to comment.

The fight to win the Saudi Aramco flotation, which is planned for 2018, comes at a critical juncture for the two financial centres as Brexit tests London’s ability to retain its global reach, while the policies of the Donald Trump administration have raised questions about the US’s approach to its traditional Gulf allies.

While the sheer size of New York makes it the favourite, people with knowledge of the situation indicate the listing requirements in London might be more palatable.

No final decision has been made by the kingdom, according to people with knowledge of the matter, with discussions taking place at the level of the Royal Court.

Other exchanges that are pitching for the listing could still play a part in the IPO.

Saudi Arabia has said a listing could involve three venues given its desire to tap into the biggest possible pool of international capital and give Saudi citizens easy access to its shares.

Amin Nasser, Saudi Aramco’s chief executive, said this week that “one or perhaps two” exchanges would be chosen alongside a listing on Riyadh’s Tadawul.

The Asian market is a key part of Saudi Aramco’s growth strategy so exchanges in the region should not be ruled out, especially under a triple listing.

Hong Kong and Toronto have revealed they have both approached Saudi Aramco as possible venues, while Tokyo has high-level backing within the Japanese government, according to government officials. Singapore has also held talks.

All potential venues need to overcome several issues, from rules around the percentage of shares a company must list to requirements for inclusion in their indices.

New York has the deepest capital market but also strict rules on disclosure of oil reserve data, something the Saudis have been guarded about.

The Trump administration’s approach to Middle Eastern allies is still seen as unpredictable. US legislation allowing victims of the 9/11 terror attacks to sue Saudi Arabia, with 15 of the 19 hijackers Saudi citizens, may increase the risk of listing a major state asset in the US.

The IPO is a cornerstone of deputy crown prince Mohammed bin Salman’s plan to diversify the country’s economy away from energy, with proceeds to be invested in non-oil industries.

Saudi Aramco will initially list as much as 5 per cent of the company and investors and analysts have questioned the size of Riyadh’s $2tn valuation. But even if it reaches just half that target it would still raise $50bn — twice as much as Alibaba’s record IPO in 2014.

Owen Jones, analyst at Citi, said Saudi Aramco represents a “franchise listing” for any exchange. “It would be a fairly weighty calling card.’’

For London — where the flagship FTSE 100 index has a strong commodities weighting with companies such as BP, Glencore and Shell — landing the IPO would be a major victory given the uncertainty created by the Brexit vote. The LSE is seen as having a beneficial timezone and good access for European and Asian investors.

“Attracting the Aramco listing would be a pretty solid endorsement of London’s resilience as an international financial centre,” said Martin Price, analyst at Credit Suisse.

Additional reporting by Leo Lewis