The year 2018 should bring (besides bitcoin at $100,000 and beyond) the world's largest-ever initial public offering -- that of Saudi Aramco, the state-owned Saudi oil company. The location of the IPO was expected to be announced by the end of this year, but with two days to go, that expectation probably will not be met.
The possibility of the Aramco IPO was first mentioned by Crown Prince Mohammed bin Salman in an interview with The Economist in January 2016, but it is still not certain that the IPO will go ahead or where the listing will take place.
The big four global stock exchanges -- New York, London, Hong Kong and Tokyo -- have been vying to host the Aramco IPO. And it's no wonder, because Prince Mohammed bin Salman said the company may be worth $2.0 trillion, and therefore the 5% stake it plans to sell could be worth $100 billion. The exchanges' wooing rituals have involved the highest echelons of power in those countries.
In November this year, President Donald Trump tweeted: "Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange. Important to the United States!"
No doubt it is important to the U.S., but there might be a little impediment -- namely, the Justice Against Sponsors of Terrorism Act, voted by the U.S. Congress in September last year. The act essentially allows courts to exercise jurisdiction over civil claims on foreign assets for injuries, death or damages due to terrorist acts inside the U.S.
It could mean that if Aramco lists on the New York Stock Exchange, families of the 9/11 victims seeking compensation in courts from Saudi Arabia could find it relatively easy to seize its assets if they win. Saudi Arabia, which always has denied any involvement in the September 2001 attacks, has condemned the Act as working against the international law principle of sovereign immunity.
London is the next stock exchange in terms of size. U.K. Prime Minister Theresa May visited Saudi Arabia in April, together with the then-CEO of the London Stock Exchange, Xavier Rolet. After Brexit, London will need all the IPOs it can get, and it is understandable why the LSE is rolling the red carpet in front of Aramco.
In July, the Financial Conduct Authority (FCA), the U.K. stock exchange regulator, published proposals to create a new category of premium listing for sovereign-controlled companies, which have been widely criticized as an attempt to water down listing rules to suit Saudi Aramco.
But despite these efforts, Aramco may shun the London Stock Exchange as well. Uncertainty caused by Brexit is one thing, but the bigger danger is the political situation.
Since the ill-fated election of June this year, Theresa May's Conservatives have been fighting among themselves, while Labour Party leader Jeremy Corbyn has been gaining ground in opinion polls. Corbyn believes in nationalizing key industries and raising the fiscal burden. The world's biggest IPO probably would look too tempting to miss, in terms of taxation, if Corbyn does rise to power.
Hong Kong is next on the list of big stock exchanges. It has the advantage of being close to China, the world's second-largest economy that has a seemingly insatiable appetite for oil and oil assets. So insatiable, according to some reports, that China approached Saudi Arabia directly, saying it would like to buy the 5% stake in Aramco all by itself in a private sale. Forget the pesky details that an IPO would entail.
A report by Reuters in October said China's state-owned oil companies PetroChina and Sinopec had written to Aramco to say they were interested in a direct deal as part of a consortium that included China's sovereign wealth fund. This would be an interesting option for Aramco, because it would help it get the money without necessarily submitting to transparency criteria under IPO rules.
However, such an option perhaps would give too much power to China in the Middle East, something that might make the Saudi Arabia rulers uneasy. So would a listing in Hong Kong, because China in effect rules the territory.
Taking into account these impediments, the only major stock exchange left is Tokyo. It has none of the hang-ups listed above and offers a sufficiently deep and diversified pool of investors, plus it is home to the world's largest pension fund, the Government Pension Investment Fund (GPIF). Saudi Arabia might find it very attractive for the Aramco IPO, which is set to take place some time in 2018.
