Op-Ed: $1 Trillion on the Line, and Saudi Aramco IPO Riddled with Risk
Around the world, investment bankers rub their hands together, giddy with visions of barrels full of cash accompanying Saudi Arabian Oil Co.’s initial public offering (IPO).
But first things first.
Saudi Arabia’s decision of where the kingdom will place Saudi Aramco’s record-shattering IPO – expected to value the company up to $1 trillion – remains unclear. A year ago, it would’ve been a diplomatic snub for Saudi to list anywhere but on the New York Stock Exchange. But as the company grapples with a far more stringent U.S. reporting environment than seen in the Middle East, the Aramco IPO’s place in New York becomes less certain.
And beyond the transparency laws, the United States’ litigation-heavy culture could make New York the most perilous place in the world for Saudi Aramco to list its anticipated $1 trillion initial public offering in the coming year.
Aramco’s lawyers at White & Case LLP have said as much, and other outside experts are making similar assertions.
“Aramco risks becoming the litigation target of 9/11 victims and every other climate change zealot with a novel legal theory,” said Ethan Bellamy, senior analyst at R.W. Baird & Co. “To reap the rewards of listing in the U.S., inevitably the Saudis must expose themselves to the type of relentless litigation onslaught that plagues most large public companies, in addition to assuming the burdens of September 11.”
Relatives of more than 800 victims’ of the 9/11 assault filed a class action lawsuit against Saudi this spring, alleging the country’s involvement in the attack. Fifteen of the 19 hijackers involved were from that nation; a U.S. commission found no evidence that the kingdom funded the operation that killed almost 3,000 people in New York, Washington DC and Pennsylvania.
Up until last year, Saudi didn’t have to worry about that sort of litigation. But in October, Congress passed the “Justice Against Sponsors of Terrorism Act,” which opened the courts. Congress could repeal the law, but that strategy would be shaky. To begin, the president and the Republican-led Congress would have to work out a way to use the words “repeal” and “terrorism act” inside a 15-second sound bit that couldn’t be used against them. But Congress struggles to get anything accomplished, anyway, so for the foreseeable future, that law is likely to stand.
Some folks opined that if not in the United States, then surely the IPO will find a home in London at the prestigious FTSE Index. But with Aramco’s decision to include only 5 percent of the company in the IPO, that’s a dubious destination, too.
To attain a premium listing on the London exchange, at least 25 percent of the company must be on the block. Much as Londoners may want the Aramco listing, they’re not expected to bend the rules.
And so it seems that Saudi Arabia has a reckoning ahead. To list in New York or London – comprising the top three markets by market capitalization – the kingdom may have to change the way it does business. The option to pull the listing is there, too, but Saudi needs a cash infusion after years of both declining market share and declining oil prices, which cut deeply into the government treasury.
As Bellamy told me, the Saudis will have to make some hard decisions.
“What they can't do is to wish away the uncomfortable truth of too little oil revenue in the face of an ultimately unsustainable Faustian bargain between the Saudi royals and their people. The unequal disposition of Saudi wealth and power, built on the shaky foundation of a perpetual oil export surplus, must inevitably fall,” he said. “That they need to sell part of Aramco at all tells a much more dramatic tale than where they ultimately list the shares.”
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