British dysfunction could make Trump’s Saudi Aramco dream come true

2 weeks ago 7ring 0

In the eternal competition between London and New York to be the world’s premiere financial hub, British dysfunction may unwittingly give its American rival the advantage. Case in point is the battle over Saudi Aramco—officially known as the Saudi Arabian Oil Company—which is planning the biggest initial public offering in history.

The American champion, US president Donald Trump, used his Twitter account this month to urge officials at state-owned Aramco to select New York for a listing that could raise as much as $100 billion, valuing the energy giant at some $1 trillion or more.

Meanwhile, UK prime minister Theresa May has also been personally lobbying Riyadh for a slice of the deal; her government has agreed to a $2 billion loan guarantee for Aramco to sweeten Britain’s bid.

Besides bragging rights, fees associated with such a large listing would rain money on bankers as well as the winning stock exchange. Given its size, many asset managers may have to put Aramco in their portfolios in order to track market indexes; if the oil company listed in London, American money managers would have little choice but to bring some business to the UK capital.

London will still be a global financial center after Brexit. But the uncertainty about the process is far from ideal for a nation seeking big international deals: Trade relationships are highly uncertain, as is the effect on capital flows across the region. The UK hasn’t sorted out its divorce bill with the EU, which is only the first hurdle of Brexit talks. May has been forced to reshuffle her cabinet, and EU officials are already planning for her downfall, according The Times (paywall).

There’s been no shortage of American drama since Trump was elected a year ago, but at least New York will still, by all appearances, be in the US in 16 months.

London Stock Exchange Group, which hopes to host at least part of the Aramco listing, is embroiled in its own boardroom drama. CEO Xavier Rolet has helped May lobby for the IPO, but he’s leaving the exchange operator. Activist investor Chris Hohn—founder of The Children’s Investment Fund which owns about 5% of LSE—says Rolet was forced out and may instead seek the removal of the company’s chairman, Donald Brydon, according to the Financial Times (paywall).

National rules could determine the winner. UK watchdogs have been accused of watering down (paywall) regulatory standards to win the listing.

The US has deeper capital markets—a rational reason to list a big stock there—but new laws could derail New York’s hopes for the oil giant’s business. The Justice Against Sponsors of Terrorism Act (JASTA) opens the Saudi government up to lawsuits accusing it of helping to plan the Sept. 11, 2001, attacks in the US.

And then there’s Saudi Arabia’s own palace intrigue. If the IPO goes ahead, investors will have to look past a recent purge of princes on corruption charges. Depending how much scrutiny Saudi officials are willing to tolerate, the large international exchanges could be left out altogether—the offering could be limited to the domestic Saudi exchange and to private stake sales to investors, according to the Financial Times (paywall). If that’s the case, London and New York would have to move on to their next battle for financial supremacy.

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