At least five leading stock exchanges around the world, from Toronto to Hong Kong and Singapore, have shown an interest in being Aramco’s host, alongside the Tadawul in Riyadh.
The leading two contenders are thought to be the New York Stock Exchange (NYSE), and the London Stock Exchange (LSE).
New York, by virtue of its size, prestige and closer ties between Saudi Arabia and the US under President Trump, is generally reckoned to be in pole position. But there have been suggestions that some advisers to Aramco have warned against an NYSE listing, mainly on grounds of risk to Saudi assets in the highly-litigious New York legal community.
In the course of a recent US visit, Arab News tested the nature of informed American opinion regarding Aramco with three of the most prominent thought leaders in the area of US-Saudi business relations.
The idea was to gauge how Aramco is viewed by the key constituencies it will have to deal with in the course of an NYSE listing: The American political establishment; its peer groups and partners in the global oil industry; and the professional investing community on Wall Street.
The overall lesson is that, while there may be some regulatory and legal risks to a New York listing, Americans at virtually every level would welcome the Saudi oil giant to the NYSE and would look forward to closer business ties with the Kingdom.
Ellen Wald is an historian and journalist who specializes in Middle East energy policy. She teaches at the Jacksonville University in Florida and her forthcoming book “Saudi, Inc.” will be published next year.
On official policymakers’ attitude to Aramco, she said: “Aramco has long had interests in the United States, including ownership of the largest refinery, and no policymakers have made an issue of it. The most significant time that Aramco drew the ire of US policymakers was in the 1970s, when it was still a predominantly American company and legislators called US executives to Washington DC to answer for the oil shocks.”
Wald does however warn of the possibility of lawsuits under the Justice Against Sponsors of Terrorism Act passed under the Obama administration. “It’s still an open question of whether an NYSE listing would expose Aramco to liability under JASTA. In a more long-term stance, policymakers may take an interest in Aramco after it goes pubic, if it lists on the NYSE,” she said.
Washington-based Jean Francois Seznec is a political scientist specializing in business and finance in the Middle East, and an adjunct professor at three prestigious East Coast universities.
“I think the relationship with the American political community is good. People with long memories in America recall that when Aramco was nationalized by the Saudi government the shareholders were paid compensation, unlike in some other parts of the world. The Democrats see Aramco as a force toward modernization and progress in Saudi Arabia; the Republicans see it as a good commercial partner,” he said.
Jim Krane, an award winning journalist and author, currently fellow for energy studies at Rice University’s Baker Institute in Houston, Texas, said Aramco currently keeps a “low profile” in the US.
“Aramco’s Motiva affiliate is one of the biggest US refiners and suppliers of gasoline. Motiva owns the biggest refinery in the country, in Port Arthur, Texas, but most Americans have never heard of it. When Americans fill up with Motiva gasoline, they buy it at their local Shell station.
Very few Americans realize that Shell gasoline — at least in some states — is refined by a Saudi company largely from Saudi crude oil,” he said.
On Aramco’s standing with its peers in the oil business, Seznec said Aramco was regarded as “respected competition.”
He added: “It’s regarded as a well-managed company that can handle its own market, and certainly not seen as a pushover. Oil services companies like Halliburton and Schlumberger are extremely happy with Aramco because they get a lot of business from them. Companies like Exxon might say they’re not as good or as efficient as we are, but they have to respect them, not least because they are so big and want to be bigger.”
On how American energy companies would see an Aramco IPO on the NYSE, Wald said: “It’s an interesting event for them because for the first time they will be able to see the financials of this major competitor. It’s also important to remember that Aramco is positioned differently from the independent oil companies (IOCs) — Aramco has proven oil reserves that vastly outnumber any of the IOCs by several orders of magnitude.”
Krane agreed. “Aramco is a respected name in oil and gas — period. Our research puts it at the top of the list of state-owned oil companies in terms of revenue efficiency. Peer companies understand the sophisticated engineering and strategy research that Aramco brings.
“They know Aramco is unlike most other national oil companies (NOCs), which find their host government undermining their business models. Instead, the Saudi government has ring-fenced Aramco from most government interference,” he added.
Political clout and peer-group respect are essential, but if and when the bell rings on an Aramco IPO on the NYSE it will be the reaction of professional investors that will decide its fate.
Krane said: “Many investors seem to be excited, though some are quite skeptical because they tend to not know much about Saudi Arabia or Aramco, until now a private company. For exchange-traded funds and mutual funds, Aramco will be a necessary purchase because it can be a bell-wether for the oil industry and the movements of OPEC.
“Also, in as far as Aramco will be included in developing country funds, its size will automatically make it an important component. There is a segment of Wall Street that will be uninterested in Aramco, particularly activist investors who will have no real say in the company because the Saudi government will still own 95 percent,” he added.
Seznec agreed that the appeal would vary according to the type of investor. “The big US pension funds will like it. They see it as a traditional oil company but also one which is diversifying into other areas.
“The hedge funds will probably like it less. It will not be a stock where they can make millions just trading in and out of it, it will be less volatile. So the big NY financiers may not be as happy as the more staid pension fund managers,” he added.
Wald said there was another reason for US interest in the IPO. “Wall Street is intrigued, but I’m not sure whether investors are more excited by the prospect of owning a piece of the world’s biggest company, or by the forthcoming trove of data on Saudi reserves. Probably both,” she said.
The three experts agreed, however, that the JASTA legislation was a potential negative that had to be factored into any calculations on an NYSE listing.
“I’m not sure JASTA is an enormous risk. Aramco and other Saudis already have large investments in the US and they have not been targeted. But it is still there as a risk,” Seznec said.