Could Aramco IPO be Singapore’s golden ticket?

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Saudi Aramco’s planned 2018 IPO will be a historic event for the markets, not just because of its scale but also because of the technical challenges that come with floating even a small slice of an oil company entwined with the Saudi state at just about every level. Even if only 5% of Aramco is being floated, that still amounts to US$100 billion in value. One of the key questions surrounding the IPO is where it will happen — a number of global financial centers are jockeying to partner with the Saudi Tadawul to host the listing. Singapore’s stock exchange is angling hard to secure at least some of the IPO — but does it stand a chance?

Singapore has an uphill climb competing with New York and London, but at least one major decision taken by the Saudis of late opens the door to dark-horse candidates. A boutique investment banking firm, Moelis and Company, was selected as the sole independent adviser on the Saudi IPO. Established only 10 years ago, Moelis’s team has worked on over 40 IPOs and taken on advisory roles for transactions like Hilton’s US$26 billion sale to Blackstone in 2007. Even so, landing the Aramco deal ahead of the likes of Goldman Sachs and HSBC is a coup.

All eyes now turn to the Saudi choice of venue for the IPO itself. Given the enormity of the offering, no one bourse will be able to accommodate it alone. That means outliers like Singapore are in real contention for at least a secondary listing. With increased political uncertainty in the wake of Donald Trump’s election and Brexit weighing on New York and London, Asian financial capitals will try to posit themselves as stable hubs in high-growth markets.

Unexpected shocks aside, the global financial system’s nerve centers are still very much in the running and enjoy longstanding ties to Saudi Arabia that Singapore can’t currently match. Moelis’ role in the IPO has put New York back on the table after last year’s 9/11 legislation dust-up between Washington and Riyadh, while the British have already gone several steps further. To counter the perception of uncertainty shrouding Brexit, Theresa May has been very open in reaching out to the Saudis and other Gulf emirates to assure them Britain, already a historic political and economic partner, is still open for business.

After taking over Downing Street last year, one of May’s first visits to a non-EU country was to Bahrain to participate in the Gulf Cooperation Council and meet with Saudi counterparts. In her remarks there, she made specific reference to Vision 2030, the Saudi plan to diversify its economy (of which the central plank is the part-privatization of Aramco). Aramco CEO Amin Nasser has also stated that his company is strongly considering London as a location for the listing. The prospect of a hard Brexit can cut in one of several ways when it comes to Aramco: while it will certainly be an additional hurdle for the City to overcome, a successful listing in London would be a vote of affirmation for a British financial sector stressed by the thought of losing its status as the gateway to Europe.

Singapore might be far and away the leader in the relatively quiet Southeast Asian IPO scene, but when it comes to commodities, past experience in Asian listings doesn’t do the bid any favors. When Russian metals and mining company Rusal decided to list a 10% stake on the Hong Kong stock exchange in 2010, expectations were that a raft of other Russian companies would follow. Instead, Rusal is still the only Russian firm to sell shares in Hong Kong and is now reverting back to London for further listings. London, along with New York, sits at the epicenter of not just the global oil market but commodities trading generally, thanks to institutions like the London Metals Exchange (LME). There is also the familiarity factor: the Saudis are already accustomed to handling business in those two cities, most recently a US$17.5 billion sovereign bond sale that targeted British and American investors.

If Singapore does ultimately lose out, it won’t be for lack of trying. Loh Boon Chye, CEO of the Singapore Stock Exchange, visited Riyadh last year with promises of state investment in Aramco and government to government cooperation. Singapore’s campaign was further bolstered last by a memorandum of understanding signed last November between the Singapore Stock Exchange and the Tokyo Commodity Exchange to develop Asia’s liquid natural gas market and electricity futures trading. The tie-up between the two bourses linked Singapore’s access to the ASEAN market with Asia’s largest consumer of LNG.

Over the longer term, the loss of an individual listing now won’t be too much of a knock on Singapore’s prospects. As PricewaterhouseCoopers has already suggested, the Little Red Dot already overtakes New York and ranks in second place behind London when it comes to key factors like the ease of doing business, demographics, and technology readiness. This is largely thanks to Singapore’s fintech sector, where the city has made a strategic play to position itself as the world’s top location for cutting edge innovation.

In a sign of that commitment to fintech, the Singaporean government has set up the Fintech and Innovation Group to facilitate the uptake of new technology in the financial sector. The government has also encouraged a “sandbox” environment where fintech companies can experiment with new tools for a limited time without having to comply with licensing regulations. This helps explain why Singapore is outpacing Hong Kong to become Asia’s fintech capital, a competition whose stakes are growing because fintech investment in the Asia-Pacific now outstrips Europe and the United States combined. Of course, the two islands often function better as partners than rivals.

At the end of the day, the sheer size of a listing like Aramco means that Singapore’s outside bid stands a good chance of scoring at least a secondary listing, presuming a city like London is home to the primary one. The city-state’s aggressive approach to courting outside companies and listings is paying dividends, and it is only a matter of time before major listings choose to make the Singapore stock exchange home.

Jon Connars
Jon Connars is an American investment risk analyst and researcher currently shuttling between Singapore and Bangkok with expertise in the ASEAN region. He has been featured in The Hill, The Diplomat and Asia Times.
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