What is the $100bn Saudi Aramco deal that Theresa May is discussing with Crown Prince Mohammad bin Salman?

State-owned oil behemoth valued at up to $2 trillion - enough to buy Amazon and Apple with a few hundred billion to spare

Ben Chapman
Wednesday 07 March 2018 19:40 GMT
London is vying with New York and Hong Kong to be the venue of the initial public offering of Saudi Aramco
London is vying with New York and Hong Kong to be the venue of the initial public offering of Saudi Aramco (Reuters)

The biggest stock market flotation in history will be a key topic of discussion as Saudi Arabia’s Crown Prince Mohammad bin Salman jets into the UK for a much talked about three-day visit.

London is vying with New York and Hong Kong to be the venue of the initial public offering of Saudi Aramco, the state-owned oil behemoth that could be valued at up to $2 trillion. That would be enough to buy Amazon and Apple with a few hundred billion to spare.

But how significant is it for London to attract the deal and why has it been so controversial?

What is the Saudi Aramco deal?

The Saudi royal family is seeking a stock market listing for the kingdom’s oil company which has been under complete state control for 38 years.

Just 5 per cent of shares in the company are to be put up for sale but that could net up to $100bn, dwarfing the record for largest company float ever: Chinese e-commerce firm Alibaba’s $26bn share sale in 2014.

It is the first time that stock market investors will have had the opportunity to buy directly into Saudi Arabia’s vast oil wealth. Despite the crown prince’s aim of diversifying Saudi Arabia’s economy, oil will remain at its heart for some time.

The kingdom says Aramco has reserves of more than 260 billion barrels - in excess of ten times those of Exxon Mobil, the world’s largest non-state oil company. Aramco is responsible for one in every nine barrels of oil pumped in the world each day.

Why is it so significant to the UK?

These huge numbers also mean big fees for any investment banks, lawyers, brokers and other advisors that assist on a potential sale. Such a vast deal would also bestow a healthy dose of prestige upon the financial hub that facilitates it, in an era where jurisdictions are increasingly competing with each other to be the most attractive to multinationals.

Persuading the Saudis to list in London would be a major tonic for the City, which has been battered by a seemingly never-ending stream of bad news as financial services firms announce their plans to move staff to Europe as a result of Brexit.

Why has the Saudi Aramco IPO been controversial?

Proposals to relax strict stock market rules in order to lure the Aramco listing have concerned many in the financial world.

Under the Financial Conduct Authority's proposals, a company in which a recognised government holds 30 per cent or more of the stock would be exempt from certain listing rules.

A sovereign shareholder would not have to seek approval from minority shareholders for transactions with the state, nor would they have to give them a vote on who should serve as independent directors.

Analysts have argued that these weakened governance protections put investors at risk and could damage the reputation of the City of London.

FCA chief Andrew Bailey confirmed that regulators held discussions with Aramco officials in early 2017, just months before the rule-change plans were unveiled.

Beyond the financial world, some critics find it distasteful that the UK and US are effectively partaking in a “beauty contest” to attract the eye of a regime they see as repressive and that has been linked to war crimes in Yemen.

The UK is not alone in its attempts to woo Saudi oil money. In November, Donald Trump tweeted: "Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange. Important to the United States!”

The US president chose the middle-eastern kingdom as the venue for his first state visit and would likely see the winning the Aramco listing as major coup.

In recent weeks, the possibility of an Asian listing also appears to have increased. A senior Saudi source told Reuters this week that New York and London were “just the tip of the iceberg” when it comes to a deal. Asian economies are increasingly important markets for oil.

What happens next?

After MBS has met the Queen and Theresa May among others, the 32-year-old prince will fly to the US to speak with the president and other key figures in the administration. It is not known when an announcement on Aramco listing will take place but it is understood that the the Saudis are looking to take key decisions this month so that the $100bn share sale can take place as soon as October or November.

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