Aramco Proposes Two-Stage IPO, Shunning London, Hong Kong

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 month aimed 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 journalist Jamal 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 been rattled 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.

Bethany McLean | Saudi America

Bethany McLean discusses her new book which you can purchase here: https://www.strandbooks.com/product/s… The technology of fracking in shale rock — particularly in the Permian Basin in Texas — has transformed America into the world’s top producer of both oil and natural gas. The U.S. is expected to be “energy independent” and a “net exporter” in less than a decade, a move that will upend global politics, destabilize Saudi Arabia, crush Russia’s chokehold over Europe, and finally bolster American power again. Or Will it?

Investigative journalist and bestselling author Bethany McLean digs deep into the cycles of boom and bust that has plagued the American oil industry for the past decade, from the financial wizardry and mysterious death of fracking pioneer Aubrey McClendon, to the speculators who are betting on America’s ascendance and the collapse of OPEC in the great game of geopolitics. McLean finds that fracking is a business built on attracting ever-more gigantic amounts of capital investment, while promises of huge returns have often not borne out. Overeagerness in partaking in a boom can lead to all types of problems and just as she did with the Enron story, in Saudi America McLean points out the reality and the risks of the inflated promises of the fracking boom.

How The United States Got Hooked On Foreign Oil

The United States is predicted to become a net energy exporter by 2020. This will be the first time since 1953 that the country exports more fossil fuels than it imports. For almost a century prior, the United States of America was the largest oil producer in the world. So how did the United States get hooked on foreign oil.

Every American president since Richard Nixon has pledged energy independence as a way to strengthen us geopolitically, make us more secure, or boost our economy.

The story of American oil begins in 1859 in Titusville, Pennsylvania. Small amounts of oil had seeped from the ground for a long time, but no one knew how to extract it. Until, Edwin Laurentin Drake, a former conductor, was hired. After many failed attempts, he finally struck gold — black gold.

The next FEW decades, major oil finds in Texas, California and Oklahoma contributed to U.S. emergence as a major economic power. The 1901 Spindletop gusher in Texas nearly tripled U.S. oil production.

Henry Ford’s Model T invention in 1908 – the first mass-produced car – made America the most motorized country in the world. Other industrialized countries like France, Britain and Germany were ways behind.