Last year the crown prince of the Kingdom of Saudi Arabia, Mohammad Bin Salman, announced that Saudi Aramco, the state-owned oil company would launch an Initial Public Offering (IPO) as part of the Kingdom’s Vision 2030 plan. The Vision 2030 aims to reduce the Kingdom’s dependence on oil by investing in businesses in the non-oil sector. In an interview with Reuters, the crown prince valued the company at a whopping US$2 trillion.[1] The Kingdom has planned to raise a US$100 billion by floating 5 percent of the company’s shares. However, the Kingdom’s plans seem to have gone wrong.
The biggest issue right now is where the oil giant’s IPO should be held. The two main choices for this were the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE) because of their access to high amounts of investment, among other reasons. However, many legal advisors have informed the crown prince to not have the floatation in New York. This is because of the “Justice Against Sponsors of Terrorism Act” (JASTA), which allows families of victims of 9/11 to sue the Saudi government.[2] This would result in Saudi Aramco getting embroiled in litigation if it decided to have the floatation in New York. In London, the state giant is caught in a different mess. The Financial Conduct Authority (FCA) has been accused of watering down its rules to attract the trillion-dollar IPO by the Investment Association, a lobby group for fund managers.[3] This is becoming a bigger issue as the chairs of parliament’s Treasury and Business Select Committees have taken note of this. Hence, a floatation In the LSE is bound to cause various issues with regulatory requirements.
This leaves the Kingdom in a tough spot. A listing on just the Tadawul Stock Exchange would not be enough to raise the US$100 billion required in the crown prince’s plan. However, the Financial Times recently reported that the State is considering a private sale to some Chinese investors and some sovereign wealth funds.[4] This would draw stronger links between the world’s largest oil supplier to its largest oil consumer.
Even though the Kingdom’s representatives have denied any rumors regarding the private floatation, heightened scrutiny of the FCA’s actions and the litigation risks on the NYSE make this private sale even more likely. Although this would raise the required capital needed by the Kingdom, it may have to compromise on many things to achieve this result.
[1] Shamseddine, R. and El Gamal, R. (2016 25 Apr) Aramco value to top $2 trillion, less than 5 percent to be sold, says prince
https://www.reuters.com/article/us-saudi-plan-aramco/aramco-value-to-top-2-trillion-less-than-5-percent-to-be-sold-says-prince-idUSKCN0XM16M
[2] Smith, D. (2016 29 Sept) Congress overrides Obama’s veto of 9/11 bill letting families sue Saudi Arabia
https://www.theguardian.com/us-news/2016/sep/28/senate-obama-veto-september-11-bill-saudi-arabia
[3] Binham, C and Raval, A (2017 8 Sept) UK MPs to scrutinise stock market listing reforms
https://www.ft.com/content/c47b7020-93c1-11e7-bdfa-eda243196c2c
[4] Raval, A; Fontanella-Khan, J; Massoudi, A; Kerr, S (2017 13 Oct) Saudi Aramco considers shelving international IPO
https://www.ft.com/content/42b521c0-b028-11e7-beba-5521c713abf4
Edited by Marcus Huels (MSc International Health Policy)
