US-Inspired Market Volatility Doesn’t Enhance Case Of Aramco To List On NYSE – OpEd

By Frank Kane*

If Saudi Aramco had been listed on the New York Stock Exchange on Monday at its officially estimated market value of $2 trillion, it would have lost nearly $100 billion in value between the opening and closing bells.

The Dow Jones Industrial Average Index — in which Aramco would surely be included if it ever gets on the Big Board — fell by 4.6 percent on the day. Put another way, the entire value of the initial public offering of 5 percent of the shares, if they were listed exclusively on NYSE, would have been virtually wiped out in a single day.

That is a sobering thought for the investment bankers, consultants and lawyers who are “beauty parading” in the Kingdom.

Each has their own solution to the central conundrum facing the Kingdom’s oil champion: Which exchange to list on when it fulfils its commitment to an IPO in 2018?

It is also mind-focusing for the company itself, which has witnessed an intense internal debate on the same issue: New York, London, Hong Kong or Riyadh?

Of course, when New York sneezes, the rest of the world catches cold.

If Aramco had gone for a Hong Kong listing, perhaps in conjunction with a private sale to Chinese investors, it would have suffered roughly the same loss, as the Wall Street contagion spread quickly to Asia.

If, on the other hand, Aramco had gone for a listing on London’s LSE in conjunction with a Tadawul flotation, the damage would have been limited. The FTSE index was down 1.5 percent on Monday, while the Saudi exchange actually closed marginally higher that day.

It would be illogical to draw too many conclusions from one day of trading, and markets are in an exceptionally volatile phase. The Vix Index — Wall Street’s “fear” gauge — had the biggest one-day spike in its history.

On Tuesday, Asian and European markets fell significantly too, taking their lead from New York. There is no disguising that this was an American-inspired share rout, aggravated by automatic trading in instruments linked to volatility indices.

You might argue that the falls of late last week and yesterday do not constitute a “crash”, merely a long-awaited “correction” that will shake out some over-bearish speculators and provide a buying opportunity for the big investors who have lots of cash on their hands.

It is true that the cause of the recent market falls, perversely, seems to have been rather good news: That the US economy is growing faster than expected, adding jobs and wages more quickly than anticipated.

But that has raised the risk of inflation, which in turn will lead to pressure on the US Federal Reserve to raise interest rates, as America’s central bank has already said it is imminently contemplating.

Whatever the reasons for recent corrections, Aramco is fully entitled to question whether it really wants to be on a market that is subject to such inherent volatility.

The logic of a listing on NYSE — apart from the political considerations of a US-Saudi partnership for the biggest IPO in history — is that it would bring liquidity and scale for Aramco. Simply, it would like to be measured alongside the likes of ExxonMobil, which is also on NYSE.

But, as the beauty paraders will no doubt have noticed, Exxon got hammered even harder than the Dow Jones yesterday, and ended up the worst performer on the index.
NYSE brings with it the kudos of the biggest stock exchange in the world, but it also carries a risk. The two last market crashes — the dotcom bust of the early 2000s and the global financial crisis of 2008 — were noticeably labeled “made in America.”

There is much speculation that a third — the looming “Trump bust” — will be added before long. Some analysts say that the recent corrections are just a dress rehearsal for the big one, marked in for the autumn.

We shall see, but if Aramco in the next few week publishes an “intention to float” document with NYSE as the preferred venue, it could be pricing the IPO just as the US markets are at their most fragile. That will not help get it anywhere near the $2 trillion target, already under pressure because of the risk discount of US litigation threats.

All these reservations might be swept aside by the broader strategic need to stay on good terms with Trump’s America. But the market events of the past few days have done nothing to enhance the case for New York.

• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai