London Sees Sense On Aramco Listing, But Will New York Play Its Trump Card? – OpEd

By Frank Kane*

Well that was a lot of fuss over nothing. The London Stock Exchange — after nearly a year of deliberation, consultation and some controversy — has finally given the go ahead to create a new “sovereign” listing category for companies controlled by governments.

Financial realpolitik was always going to win over idealistic principle, and it should have been a shoe-in a long time ago.

The move will allow Saudi Aramco to list its shares — if it decides to do so at all — on the LSE in a new category of the “premium” listing section. It would free Aramco from what the UK regulator itself said would be “disproportionately onerous” rules on transactions involving the majority shareholder, in this case the government of Saudi Arabia.

Although all the headlines were about Aramco, it should be noted that this addition to the London listing regulations is not just to accommodate the Saudi oil giant. Andrew Bailey, the head of the Financial Conduct Authority which oversees the LSE, made the point well: “This is about privatizations, it’s not about Aramco,” he said.

It is entirely appropriate that London, the center of the financial system that did so much to advance the cause of privatization in the 1970s and 1980s, should be looking to set up as a “privatization hub.”

Apart from Aramco, there is a huge program of state sell-offs lined up in Saudi Arabia, and some other big companies in the Kingdom might be tempted to list on the London exchange too. The rest of the world could also beat a path to London’s door as a result of the new listing category too.

London could certainly do with the business. The longer the interminable wrangling over the terms of Brexit go on, the more damage is done to the UK financial system and its central role in the European time zone. The Brexiters would love to be able to position the LSE as the market place for the world’s big sovereign companies, to compensate for business lost to Frankfurt, Paris or Brussels.

Some experts believe there is a wave of privatization coming from energy and resource rich countries seeking to diversify away from commodity dependency, and fund debt as they invest in the infrastructure needed to turn them into proper diversified economies. For London to be their global market place seems a suitable post-Brexit ambition.

The benefit to London appears obvious — quite apart from the huge advisory fees to be earned from the biggest IPO in history — that it makes you wonder why there was such opposition in the first place.

There were some genuine and commendable concerns about the possibility that London’s standards of governance would be watered down, but these seem to have been addressed to the satisfaction of the UK government and the regulator.

There was a misconception that the new category would allow Aramco to slip under the rules that insist on a 25 percent listing, but this was never the case. Listings above a value of £100 million were exempt from this requirement anyway.

Rather, the new regime will allow Aramco to get on with the business of producing oil as efficiently and profitably as possible without having to constantly seek approvals for its dealings with the controlling shareholder. That seems like common sense.

There were also concerns about the standards of independent directors on the Aramco board and the rules for their approval, but this too has been largely addressed by the recent appointments of some of the most respected non-Saudi oil executives in the business, including the first woman on an Aramco board.

There was another clique of opposition in the UK from the politically-correct brigade, especially in the opposition Labour Party, who would probably object do doing business with any government which did not share their rose-tinted world view. They have ultimately been ignored.

The only issue to be resolved now is where Aramco will be listed. Ken Costa, the wise old banker who advises the UK government on Saudi matters, seems convinced Aramco will opt for a Tadawul and LSE combination next year.

He could well be right, but it is by no means a foregone conclusion. New York has been keeping its powder dry so far, and is probably preparing the next phase of it charm offensive against London and, possibly, Hong Kong.

Wall Street will probably stress that it has been ready to accept Aramco all along, in contrast to London’s lengthy deliberations, but it will also have to soothe concerns in the Kingdom about its tough legislation on terrorism financing and the environment, which continue to make the Saudis wary.

New York will also, at some stage, play what you might call its Trump card: The close relationship between the US president and senior Saudi policymakers. Until we see the effect of that move, it is too early to say that London, even with the new rules, has won the race for the Aramco IPO.

*Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai