London could lose Saudi Aramco’s $2 trillion IPO to New York over a UK rule it’s trying to change

Eeny, meeny, miny, mo.
Eeny, meeny, miny, mo.
Image: Reuters/Hamad I Mohammed
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Saudi Arabia’s titanic state-run oil giant Saudi Aramco is looking to list 5% of its shares, which could value the company between $1 trillion (paywall) to $2 trillion. Slated to take place by the second half of 2018, it would be the world’s largest IPO—and everyone wants to try and get a slice of it.

A dual listing on its home stock exchange and an international one are expected. The main cities in the running are London, New York, Hong Kong, Tokyo, Singapore, and Toronto. Wherever it does end up listing, it will be a boon for the country it launches its IPO in, as it would generate around $1 billion in fees.

But thanks to a rule from Britain’s financial regulator the Financial Conduct Authority, it could be impossible for Saudi Aramco to list on the London Stock Exchange—unless the FCA decided to bend or completely change it in time for the oil giant’s decision. Currently a sovereign-controlled company is required to float a minimum 25% (pdf) of shares in order to make the premium segment on the LSE.

The aim of this quota is to prevent one shareholder from having significant control over the free float. But Saudi Aramco is only looking to list 5%.

New York is believed to be the favorite for the oil giant’s listing and unless Britain’s financial watchdog changes the rules, London has lost its bid. That’s not to say that the FCA is sitting by idly by; this year it launched a consultation into changing the rules related to state-owned firms launching IPOs in Britain. It released a proposal in July but the final decision on the new rules has not yet been made. However, the move has influential British government ministers worried enough to write in to the regulator, potentially creating a roadblock for London trying to claim the Saudi Aramco listing in time.

“To what extent was the FCA aware of any interest shown by Saudi Aramco in obtaining a U.K. listing and, if known, how far that interest influenced the consultation?” wrote the co-chairs of the Parliament’s Treasury and Business, Energy and Industrial Strategy Committees Nicky Morgan and Rachel Reeves, to FCA CEO Andrew Bailey, sent to Quartz and other media outlets.

“We are interested to explore the rationale for this consultation, particularly given the concerns expressed by shareholders that these proposals would weaken protection for private investors against interference from foreign sovereign company owners.”

The government ministers also claim that watering down rules could damage London’s reputation. The FCA is now under scrutiny and depending on how ministers respond to Bailey’s response to the public letter, the watchdog could face a select committee hearing in parliament very soon.

The FCA confirmed it has received the letter and said it “will respond in due course.”