Elephants: that is what hunters for oil call the very largest reservoirs holding 1bn barrels or more. One famous elephant burial ground is Saudi Arabia. The country states its reserves at 260bn barrels, unchanged since 1989. Its government has a plan to privatise and list its national oil company, Saudi Aramco. Valuing this state enterprise will be hard enough. Deciding where to list Saudi Aramco, likely to be one of the largest beasts among oil producers, will bring its own weighty problems.
Depending on the final valuation — estimates spread from $2tn to just a fifth of this — Saudi Aramco would likely be one of the largest privatisations ever. Selling even 5 per cent would make it too big to list in its home market alone. The Saudi Tadawul stock market has a total market capitalisation of $440bn, peanuts compared with the New York Stock Exchange, 50 times larger, or even London, still almost seven times that of the Tadawul.
Moelis & Co, a US boutique, is Saudi Aramco’s key adviser. It will need to decide where it is best to list a minimum of $20bn worth of stock. Only the largest securities markets will do, given the sums involved.
In the end, the most sophisticated investors, whether generalists or sector specialists, should find either New York or London palatable. Hong Kong is another possibility, given the large pools of cash in the region. A dual listing is possible, but will increase the cost and complexity of the float.
Yet listing in New York would force discussion about another elephant, the one in the room. Last year, the US Congress overruled a presidential veto to allow lawsuits against countries perceived to be funding terrorist acts. They included Saudi Arabia. Fifteen of the 19 hijackers in the 9/11 attack were of Saudi origin. Lawsuits against the country are under way.
Bankers will need large trunks to carry the Saudi Aramco prospectus to come. Expect a thick section on risks. London looks a safer choice for a listing.
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