Tokyo emerges as surprise international front-runner for world’s largest listing
Saudi Arabian Oil Co. is considering a plan to split the world’s largest IPO into two stages, debuting a portion of its shares on the Saudi stock exchange later this year, and following up with an international offering in 2020 or 2021, according to people familiar with the plans.
The company is leaning toward Tokyo as the venue for the second phase of its proposed plan, the advisers and officials said, as political uncertainty in the U.K. and China reduces the appeal of London and Hong Kong’s markets.
Saudi Arabia’s state oil giant, also known as Aramco, revived plans to sell 5% of its stock in an initial public offering earlier this monthaimed at funding Saudi Arabia’s efforts to diversify its economy beyond oil.
With earnings of $111 billion in 2018, Aramco is the world’s most profitable business, outstripping juggernauts such as Apple Inc. and Exxon Mobil Corp. But the company has seen many twists and turns on the road toward its IPO. Aramco and its advisers drew up for a potential listing in 2018, but the offering never materialized.
Everything from the fundraising amount, to the valuation of the company, to the venue for the listing, has been hotly debated, according to people involved in the discussions. The company had initially targeted raising $100 billion, but it remains unclear what the final number will be.
The outcry that followed the murder of Saudi journalistJamal Khashoggi last October also complicated plans to attract investors, according to people familiar with the matter.
According to one plan under consideration, the company could seek to raise as much as $50 billion in a domestic listing, one person said. Both domestic and international investors would have access to the stock in a domestic listing.
If Aramco and its advisers choose Tokyo as the setting for the international offering, it would be a disappointment for London and Hong Kong, which were initially seen as the most likely locations for the listing. Both locales were considered politically safer than the U.S., but are now less likely, the people said.
Saudi Crown Prince Mohammed bin Salman has pushed for an IPO in New York as a way to deepen Saudi ties with President Trump. But Aramco Chairman Khalid al-Falih has opposed the U.S. option over concerns that Saudi assets could be targeted by terrorism-related lawsuits. The Justice Against Sponsors of Terrorism Act, passed in 2016, allows terror victims’ families to sue foreign countries for compensation.
The company could invite antitrust litigation if it were to list there due to its membership in the Organization of the Petroleum Exporting Countries and the cartel’s efforts to control oil production and prices. Aramco identified the risk of such litigation in its bond-offering prospectus.
London, which has lobbied Saudi Arabia to host the IPO, was seen as a favorite when Prince Mohammed visited the U.K. last year. But the Aramco advisers and Saudi officials said they were increasingly concerned about the regulatory uncertainty that could arise from the U.K.’s plan to leave the European Union on Oct. 31.
On Wednesday, U.K. Prime Minister Boris Johnson moved to shut down Parliament for several weeks, a tactic aimed at preventing opposition lawmakers from blocking the U.K. from exiting the EU without a deal.
An Aramco adviser said leaving without an agreement increased the chances that the U.K. would align its legislation with the U.S.—including the terrorism laws that have been an impediment to a New York listing.
Meanwhile, Hong Kong has beenrattled by protesters who have fierce objections to a bill that would have allowed extradition of criminal suspects to China. The demonstrations have evolved into a broader pro-democracy movement and disrupted business and travel.
Aramco’s press office said the “company continues to engage with the shareholder on IPO readiness activities.” It “is ready and timing will depend on market conditions and be at a time of the shareholder’s choosing,” it said in an email comment.
The Saudi officials and Aramco advisers said no final decision has been made about where, or when, any listings would take place and all options remained open. Still, officials said they were leaning toward a listing on the Tokyo exchange.
A spokeswoman for the London Stock Exchange declined to comment. The Hong Kong bourse didn’t respond to a request for comment.
A spokesman at Japan Exchange Group Inc., which operates the Tokyo Stock Exchange, said Thursday, “there has been no change in the status [of a potential Aramco IPO] so far. But there has been no change in our attitude that we would like the company to come to the TSE.”
Japan Exchange Group’s Chief Executive Akira Kiyota has repeatedly expressed his eagerness to have Aramco listed in Tokyo. And in June, Saudi Arabia, which supplies about a third of Japan’s oil, mentioned “cooperation in the IPO of Aramco” in an outline for economic partnership with Japan.
The Tokyo exchange has attracted some of the world’s largest IPOs, including last year’s nearly $24 billion issue by SoftBank Group Corp’s mobile phone unit. It was the world’s second largest IPO after China’s Alibaba Group Holding Ltd. listing in 2014, and showed that the exchange can manage big debuts and serve a large pool of investors.
Aramco’s interest in pursuing a local listing emerged as the company has discussed with bankers the possibility of launching the IPO before the end of this year, and asked about the valuation Aramco might expect with a domestic-only offering, according to people familiar with the matter.
Prince Mohammed is looking to value Aramco at $2 trillion. Bankers and other Saudi officials say they believe a range of between $1.2 trillion and $1.5 trillion is more realistic.
The sale of a smaller amount through the domestic offering could bring Aramco closer to the crown prince’s goal by making it easier to ensure investors’ demand for the available shares exceeds supply, which would drive up the company’s ultimate valuation, some bankers suggested. In turn that valuation would set the floor for a subsequent listing on an international exchange in 2020.
Alternatively, Aramco could try to sell a stake to a so-called cornerstone investor such as a sovereign-wealth fund at the target valuation—ahead of the IPO, to establish a precedent, one banker said.
Frankly, it’s a disgrace that Trump administration officials and American business tycoons enabled and applauded M.B.S. as he
imprisoned business executives,
kidnapped Lebanon’s prime minister,
rashly created a crisis with Qatar, and
went to war in Yemen to create what the United Nations calls the world’s worst humanitarian crisis there.
Some eight million Yemenis on the edge of starvation there don’t share this bizarre view that M.B.S. is a magnificent reformer.
.. Trump has expressed “great confidence” in M.B.S. and said that he and King Salman “know exactly what they are doing.” Jared Kushner wooed M.B.S. and built a close relationship with him — communicating privately without involving State Department experts — in ways that certainly assisted M.B.S. in his bid to consolidate power for himself.
The bipartisan cheers from Washington, Silicon Valley and Wall Street fed his recklessness. If he could be feted after kidnapping a Lebanese prime minister and slaughtering Yemeni children, why expect a fuss for murdering a mere journalist?
.. M.B.S. knows how to push Americans’ buttons, speaking about reform and playing us like a fiddle. His willingness to sound accepting of Israel may also be one reason Trump and so many Americans were willing to embrace M.B.S. even as he was out of control at home.
In the end, M.B.S. played Kushner, Trump and his other American acolytes for suckers. The White House boasted about $110 billion in arms sales, but nothing close to that came through. Saudi Arabia backed away from Trump’s Middle East peace deal. Financiers salivated over an initial public offering for Aramco, the state-owned oil company, but that keeps getting delayed.
.. The crackdown on corruption is an example of M.B.S.’s manipulation and hypocrisy. It sounded great, but M.B.S. himself has purchased a $300 million castle in France, and a $500 million yacht — and he didn’t buy them by scrimping on his government salary.
.. In fairness, he did allow women to drive. But he also imprisoned the women’s rights activists who had been campaigning for the right to drive.
Saudi Arabia even orchestrated the detention abroad of a women’s rights activist, Loujain al-Hathloul, and her return in handcuffs. She turned 29 in a Saudi jail cell in July, and her marriage has ended. She, and not the prince who imprisons her, is the heroic reformer.
.. The crown prince showed his sensitivity and unpredictability in August when Canada’s foreign ministry tweeted concern about the jailing of Saudi women’s rights activists. Saudi Arabia went nuts, canceling flights, telling 8,300 Saudi students to leave Canada, expelling the Canadian ambassador and withdrawing investments. All for a tweet.
.. Western companies should back out of M.B.S.’s Future Investment Initiative conference later this month. That includes you,
.. We need an international investigation, perhaps overseen by the United Nations, of what happened to Jamal. In the United States, we also must investigate whether Saudis bought influence with spending that benefited the Trump family, such as $270,000 spent as of early 2017 by a lobbying firm for Saudi Arabia at the Trump hotel in Washington. The Washington Post reported that Saudi bookings at Trump Chicago increased 169 percent from the first half of 2016 to the first half of this year, and that the general manager of a Trump hotel in New York told investors that revenues rose partly because of “a last-minute visit to New York by the Crown Prince of Saudi Arabia.”
.. If Saudi Arabia cannot show that Jamal is safe and sound, NATO countries should jointly expel Saudi ambassadors and suspend weapons sales. The United States should start an investigation under the Magnitsky Act and stand ready to impose sanctions on officials up to M.B.S.
America can also make clear to the Saudi royal family that it should find a new crown prince. A mad prince who murders a journalist, kidnaps a prime minister and starves millions of children should never be celebrated at state dinners, but instead belongs in a prison cell.
Basic elements of oil giant’s governance, structure and financial disclosures remain unresolved
The difficulty of quickly turning a behemoth that functions largely to support the Saudi budget into a company accountable to shareholders has crystallized over the past couple of months.
.. The prince has said the company could be valued at more than $2 trillion when it is listed.
.. Currently, about 90% of Aramco’s profit goes to the Saudi government and members of the royal family, say five people familiar with the finances. The rest, they say, gets reinvested in the company.
.. the government and Aramco have brought in a host of foreign advisers, including banks; accounting firms PricewaterhouseCoopers LLP and Ernst & Young LLP; and law firms
.. The IPO is part of his plan to wean Saudi Arabia’s economy of its dependence on oil.
.. would put IPO proceeds and much of Aramco’s stock into a giant sovereign-wealth fund. That fund would then sink tens of billions of dollars into international and domestic companies outside the oil industry.
.. Prince Mohammed also met dignitaries including former British Prime Minister Tony Blair.
.. Aramco and the government are also trying to figure out how to handle vast subsidies on Aramco’s books, including natural gas that it sells at a loss to government-owned power plants
.. In some cases plants pay about two-thirds of the cost of pumping the gas; at other times the utilities don’t pay at all
.. The company currently requires that 80% of employees in each division be Saudi nationals, which is a challenge in some areas, like accounting, where there is a dearth of trained Saudis