Will Saudi Aramco Snub the US, Take Its IPO to Europe or Asia?

Will Saudi Aramco Snub the US, Take Its IPO to Europe or Asia?
With Congress' push to let 9/11 victims sue Saudi Arabia, whether Saudi Aramco will file its $2 trillion IPO in the United States becomes a question.

As Saudi Aramco plans for an expected $2 trillion initial public offering, some experts say United States policy-makers may have handed the company a reason to file it elsewhere.

When the U.S. Congress overrode President Obama’s veto of the Justice Against Sponsors of Terrorism Act (JASTA) last month, it opened the door for victims of the 9/11 terrorist attacks to sue Saudi Arabia. Despite fierce protest from the House of Saud that it had nothing to do with planning the attack, 15 of the 19 hijackers involved were Saudi nationals.

And the consequence of Congress’ veto override – the first in Obama’s tenure – could be that Aramco, a state-owned company, books its initial public offering (IPO) outside of the United States.

Jim Krane
Jim Krane, Wallace C. Wilson Fellow for Energy Studies, Rice University
Wallace C. Wilson Fellow for Energy Studies, Rice University

“If Aramco doesn’t list in the U.S., I’d say that is a bit of a diplomatic snub,” said Jim Krane, the Wallace C. Wilson Fellow for Energy Studies at Rice University. “And I think the Saudis … they wouldn’t mind if Americans take it that way.”

Krane said Saudis are upset and alarmed by the legislation, which is expected to become law.

“If it’s true they considered a U.S. listing for Aramco, and then declined because of JASTA, that’s one way of signaling your displeasure,” he said.

The U.S. and Saudi Arabia have a long relationship that grew close during the Cold War, when the two nations were united by their common enmity for the former Soviet Union. They still share major economies built on fossil fuels and a similar worldview of problems in the Middle East, Krane said. However, with the collapse of the Soviet Union in 1991, the Obama Administration’s nuclear deal with Iran and the invasion of Iraq, the two have drifted apart.

Carl Larry, director of oil and gas business development at Frost & Sullivan, said Aramco wouldn’t lose money by listing its IPO outside of the United States. In fact, the move would lighten its risk of ratings agency scrutiny, federal transparency law and fickle U.S. investors.

“There’s a lot that Saudis avoid by not coming here,” he said. “It remains to be seen what they’re doing, but I just don’t think their interests are to see the U.S. get involved when it comes to owning any kind of stake in their country.”

Carl Larry
Carl Larry, Director of Oil and Gas Business Development, Frost & Sullivan
Director of Oil and Gas Business Development, Frost & Sullivan

And if keeping U.S. dollars out of Saudi Arabia is Aramco’s goal, snubbing the U.S. exchanges might do it, Larry said.

“As far as a financial impact on the U.S., it certainly will lose a lot of U.S. investors that just don’t, can’t or won’t invest outside the U.S.  When it comes to major funds or investment pools, they won’t have the ability to buy into any foreign listings,” he explained. “One would think that a country like Saudi Arabia would want the most bang for their buck in an IPO of this size, but their recent sale of nearly $18 billion in bonds shows they can rely on other foreign investors to supply all the cash they need.”

Still, other experts say that even if Aramco chooses to list outside of the U.S., it wouldn’t necessarily quash the longtime consonance.

“U.S.-Saudi bilateral cooperation will continue to endure and flourish regardless of any temporary diversions,” said Christopher Guith, senior vice president for policy at the U.S. Chamber of Commerce’s Institute for 21st Century Energy.

To be sure, there are several factors in the “remains to be seen” category regarding the IPO. The company has said it’s planning to list 5 percent of its assets in the deal – and even at 5 percent, it’s a formidable figure – but there’s no clear answer on which assets.

In recent weeks, Saudi Aramco CEO Amin Nasser has said the 5 percent put on the market would be from all parts of the company – not just the downstream segment, as some experts have suggested.

But even the 5 percent stake isn’t a given. Nasser said there’s “nothing magical” about the figure. It’s simply a figure mentioned by the Supreme Council because the Aramco valuation would be too large.

Dave Pursell
Dave Pursell, Managing Director & Head of Macro Research, Tudor, Pickering, Holt & Co.
Managing Director & Head of Macro Research, Tudor, Pickering, Holt & Co.

Dave Pursell, managing director and head of macro research at Tudor, Pickering, Holt & Co. in Houston, said to offer upstream assets would open the Saudi Arabia government, which owns Aramco, to a level of scrutiny not seen in other countries.

“It gives you transparency on reserves and production. That’s why I’m relatively skeptical the IPO occurs in the form that people think it will because I just don’t know that they’re going to want to be that transparent,” he said.

But at the World Energy Congress in Istanbul this month, Nasser suggested otherwise to CNNMoney.

“We will be more than happy to share our financials with investors when we go public,” he said.

Pursell noted that OPEC’s talk of a production freeze would help the IPO because it would boost prices.

“There’s massive incentive to get oil prices higher because an IPO of Aramco at $80 oil has to be worth a lot more than an IPO at $40,” he said. “The freeze is a path to getting higher oil prices, and higher oil prices is a path to getting to the IPO.”

US Election

Analysts’ opinions are mixed on whether the U.S. presidential election would have an impact on Aramco’s interest in the U.S. exchange.

Krane noted that Republicans have typically been friendlier to Saudi Arabia, especially the Bush presidents. But running as Republican this year, Manhattan business celebrity Donald Trump is behind former Secretary of State Hillary Clinton by double digits in recent polls.

And while Clinton might be a little warmer toward the Saudis than Obama, there are variables – such as JASTA – that would be out of her hands.

JASTA “was Congress’ doing and I don’t see Hillary Clinton being any more able than Obama was to block something like that,” he said.

However, Larry said that if Aramco were to slight the U.S. by filing its IPO in Europe or Asia, a new president might not welcome Aramco investment in the domestic industry. For example, Saudi Arabia has shown some interest in Lyondell Bissell Industries’ refinery in Houston.

“There’s an argument to be made that perhaps the Saudis should come under a little tighter review for buying any domestic assets,” he said. “I can surely imagine that if the Saudis choose to list away from the U.S. exchanges, for their own reasons the U.S. might just not let them in to buy U.S. assets without a challenge.”



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