By Ovunc Kutlu
What could be the world’s largest initial public offering will be harmed if oil company Saudi Aramco does not list its shares on the New York Stock Exchange (NYSE), according to a leading financial consultant.
Saudi Arabia is due to sell 5 percent of its “crown jewel” next year as part of plans to set up the world’s biggest sovereign wealth fund and reduce the country’s reliance on oil.
However, the company, estimated to be worth more than $2 trillion, reportedly may not be listing on the largest international stock market in protest at legislation that allows the families of 9/11 victims to sue the Saudi government.
"Saudi Aramco would hurt its IPO by not listing on the NYSE," Mayra Rodriguez Valladares, managing principal of MRV Associates, told Anadolu Agency.
“First of all, let’s see if Aramco will really go with this threat of not listing in the U.S.,” she said.
“It's quite a privilege for many companies to list in the U.S. It’s a market that is very large, very liquid and very well regulated.”
The sale -- announced by Deputy Crown Prince Mohammed bin Salman last April -- is projected to generate $100 billion, which is more than four times the previous record of $22 billion from the sale of shares in Chinese online retailer Alibaba on the NYSE in 2014.
Aramco’s projected value would put it at almost three times the market capitalization of the world’s most valuable company in public trading, Apple, which is currently valued around $717 billion.
Aramco is planning to launch the IPO on the Saudi stock exchange, Tadawul. However, due to the sheer volume of the offering, major markets such as London, Hong Kong, and Tokyo are also in consideration.
Rodriguez Valladares questioned whether those three exchanges would be able to handle the sale, noting “a lot of uncertainty ongoing with Brexit with the London market” while the two Asian exchanges were “not as big as the U.S.”
While NYSE remains an attractive option for the IPO, Aramco may wish to avoid it for another reason -- the added scrutiny that comes with it.
Dr. Florence Eid-Oakden, chief economist at the London-based Arabia Monitor analysis firm, said "not listing means it does not have to subject itself to the full array of U.S. securities laws applicable to foreign companies that require extensive disclosure."
To sell shares on the NYSE, Aramco would have to go through a financial audit, become more transparent and, more importantly, disclose its crude oil reserves.
The state-owned company keeps its records close to the chest as the amount of crude reserves -- estimated between 260 to 310 billion barrels -- is a matter of national security.
“To go public, Aramco would have to put its accounts and oil reserve data under independent scrutiny,” Eid-Oakden said. “The inclusion of the larger and more profitable upstream units in the IPO are intended to set a standard for greater transparency among other Saudi companies in the future.”
She added that President Donald Trump “may be inclined to see JASTA [Justice Against Sponsors of Terrorism Act] as an unwelcome impediment to U.S.-Saudi private sector cooperation.”
Rodriguez Valladares said it would be better for Aramco to list on the U.S. market “if they want to issue bonds, or stocks again.”
She added: “It’s the world’s largest oil company and it wants to be able to list in the biggest place where its stock will have liquidity.”