London takes up pole position for Aramco offering

London Stock Exchange is working on a new type of listing structure that would make it more attractive for Saudi Aramco to join. Toby Melville / Reuters

At a time when it most needs a morale boost, London looks certain to get a slice of the world’s biggest-ever initial public offering.

For two years, City bankers, lawyers, stock exchange officials, PR companies and every shape of adviser and consultant have been beating a path to the door of Saudi Aramco, the Saudi state oil company, hoping to persuade Khalid A Al Falih, the kingdom’s energy minister and chairman of Saudi Aramco, to choose London over New York for its long-awaited listing. Now, at last, the decision is on the point of being taken. And London has moved into pole position.

It could not come at a better time. British business and the City is severely bruised after the disastrous shambles of the election and the ramifications of a hung parliament. Markets hate uncertainty, and right now there is more political uncertainty than at any time since Ted Heath lost the election in February 1974 and tried to hang on with a minority government. He failed of course, as Mrs May is destined to fail, but that’s no consolation for an already fearful business and financial community looking uneasily over the precipice at what Brexit means for a fragile economy.

Already, with Mrs May’s negotiating hand badly weakened, Brussels officials are flexing their muscles and threatening to force parts of London’s lucrative euro clearing business to relocate to the EU. And this is just the beginning; the Brexit negotiations have not even begun yet and everyone knows the City, which every financial centre in Europe is jealous of, is the number one target. None of the big banks or financial institutions will move but they may move some staff and specialist activities, which will chip away at London’s dominance.

A London listing for Aramco would be a major feather in the City’s cap. The Saudi behemoth would almost certainly beat Apple to the position of being the world’s first trillion dollar company, and it could be a lot bigger than that; I have seen figures of US$2 trillion hawked around but since no one has ever seen a balance sheet and Aramco has never revealed the size of its oil reserves, it’s all guesswork. Once you get over the first trillion, who’s counting?

Until recently, Saudi and Aramco officials are said to have favoured a twin listing on Saudi Arabia’s Tadawul exchange and the New York Stock Exchange. But the unpredictability of Donald Trump, who initially accused Saudi Arabia of being a “currency manipulator” and in the next breath claimed the kingdom as his best friend, may have done for that. Advisers have also cautioned about the dangers of walking into the minefield of potential US litigation, which could embroil the company in class action lawsuits for years.

The New York Times recently reported that the legal firm advising Saudi Aramco, White & Case, warned its client of the legal risks of a New York listing, which include legislation that could allow families of the victims of the 9/11 attacks in 2001 to sue. It could also face class actions if it failed to comply with tough US regulations on oil companies disclosing reserves and detailed data.

New York may have the biggest pool of investors but London is more user-friendly – and is prepared to bend the rules. Reuters reported in May that the London Stock Exchange (LSE) is working on a new type of listing structure that would make it more attractive for Saudi Aramco to join. This has caused fury in some circles, and much rumbling that we can’t have one rule for lesser companies and another for the Saudis, just because of their size. But yes we can, and I think we will. All sorts of rules and regulations will probably be waived: pledges on compliance with rules such as governing conflicts of interest, gender diversity and UK corporate governance, which are probably even less appealing to the Saudi authorities than they are to the average British FTSE company, will never be applied.

A full LSE listing would also involve relaxing the rules requiring a company to maintain a “free float” of 25 per cent, which in Aramco’s case could be as much as $500bn – more than the market value of any British company. Aramco is intending to float just 5 per cent, which would still make it the biggest IPO in LSE history. As one commentator remarked last week, “the thought of Aramco not listing in London is too horrible for the Stock Exchange to contemplate”.

Ultimately, no one is going to let petty rules get in the way of it.

Ivan Fallon is a former business editor of The Sunday Times.

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