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Rolet’s departure a blow to London in race for Saudi Aramco IPO

There was a noticeable absentee from the party accompanying Theresa May, the British prime minister, in her visit to Saudi Arabia yesterday.
Xavier Rolet was chief executive of the London Stock Exchange (LSE) when May last visited the Kingdom, in the spring, and — according to reports at the time — got on extremely well with Saudi officials and business people.
So well, in fact, that the spring visit prompted more speculation that London was a frontrunner in the contest to win the international portion of the forthcoming initial public offering (IPO) of Saudi Aramco, billed as the biggest IPO in history at a possible $100 billion valuation.
London, and Rolet, must have taken the visit to heart. A few months later, the stock exchange listings rule book was reordered, under the control of the regulator, the Financial Conduct Authority, to allow “sovereign” IPOs to go ahead on the LSE under new guidelines.
Contrary to belief in some quarters, these changes did not involve reducing the minimum float from 25 to 5 percent. They mainly tinkered with the rules related to party transactions and appointment of directors, seen as essential to allow a listing like Aramco, which would be majority-controlled by the Saudi government, to go ahead.
Rolet reinforced his enthusiasm for the Aramco IPO early last month, when he told Bloomberg that the proposed changes had nothing to do with governance and everything to do with liquidity. If a company was big enough, like Aramco, it would qualify even with a minimum float below the 25 percent level.
His enthusiasm counts for little now, because yesterday he decided to step down immediately from the position of CEO of the exchange, adding, with dramatic effect, that he would not be staying on at LSE “under any circumstances.” As resignations statements go, that’s about as final as it gets.
Rolet’s decision to leave came after an extraordinary bout of infighting on the LSE board, in which he was pitted against the chairman, City grandee Sir Donald Brydon, in what appears to have been a true difference of opinion over management styles.

The London Stock Exchange was already fighting a losing battle in its bid to host the world’s biggest listing — and the departure of its CEO will likely further diminish its chances

Frank Kane

Rolet was said to be a “passionate, opinionated person,” who usually ended up getting his own way on business matters. This attitude put noses out of joint at the clubby LSE, it was said, to such an extent that the board considered publishing a “dossier” of evidence on Rolet’s strong-headedness, in the form of emails to and from him over the course of the past eight years.
Was his enthusiasm for the Saudi Aramco IPO an example of this single-mindedness? Rolet certainly found himself up against opposition from certain vested interests in the London investment community over his desire to get the Aramco IPO to London, backed up by a section of members of Parliament who were also against the Saudi move.
One person I spoke to yesterday — a seasoned London investment professional who has followed the affairs of the LSE for many years — said that Rolet’s willingness to do what was necessary to accommodate the Aramco IPO could indeed have been seen as a factor against him in the end. “He’d do anything to make the LSE some money, especially in the Brexit environment, and that was too much for some purists,” he said.
Unless the dossier gets published in some form, I guess we will never know the full reasons for Rolet’s departure, but one thing is certain: Saudi Arabia has lost a friend and ally in Xavier Rolet.
Something else is just as certain: London’s chances of staging the IPO have dwindled even further with his departure.
The LSE was fighting a losing battle anyway against New York as the place to stage the IPO. The New York Stock Exchange (NYSE) always had a stronger claim to the flotation, on grounds of size, liquidity and the closer political relationship between Saudi Arabia and President Donald Trump.
London’s main hope lay in the apparent hostility of some people in the US to a Saudi listing, and the more litigious nature of Wall Street, which could see Aramco tied up for years in potential law suits over (spurious) claims of involvement in terrorism funding and (more plausible) actions against Big Oil over climate change.
More recently, Hong Kong has emerged as another contender for the international part of the listing, reinforced by a possible sale of shares in a private transaction to big Chinese investors.
This was underlined yesterday when Charles Li, chief executive of the Hong Kong exchange, said that an HK listing would help satisfy the “massive” Chinese demand for Aramco shares.
At the time of May’s spring visit to Riyadh, it looked liked a two-horse race between New York and London for the Aramco IPO; now, I would still put NYSE in the lead, but closely followed by Hong Kong.
Rolet’s unsaddling puts London even further back in third place, and losing ground.

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