Snapchat, Visa & General Motors – these are just a few of the large Initial Public Offerings (IPOs) of the last decade, though none of them has generated as much buzz in the market as the highly-anticipated listing of Saudi Aramco, Saudi Arabia’s state-owned oil company. Despite the recent worldwide efforts towards green energy diversification and renewable technologies, this oil giant is taking the world by storm. Valued by its government at more than $2 trillion, the firm is a leading oil exporter, producing over 10 million barrels of oil daily. The state has been looking to float 5% of the firm, and exchanges around the world such as those in New York, Toronto, Hong Kong, & London have been fighting for a slice of it. The IPO, when it occurs, will have significant repercussions on world markets, particularly on the country where it is listed. Canada’s geopolitical environment and abundant knowledge of natural resources may just put Toronto in the running for a listing.
What makes this IPO so attractive to multiple countries? Exchanges largely charge an initial and annual listing fee, and a listing of this size means exchanges stand to benefit substantially. Furthermore, such an IPO is likely to generate heavy trading, which would lead to huge fees in commissions for exchanges.
An IPO of this magnitude can have a wide impact on the economic landscape. Firstly, oil prices are likely to rise over the next couple of years. This reflects a huge change compared to the past few years where excess supply has caused a depression in oil prices. Saudi Arabia would want to list Aramco in a favourable environment for oil prices to try to maximize its possibility of a strong share price. This is likely to be viewed positively by investors, translating into a steady performance of oil equities. Given Canada’s huge oil sector, this can lead to a boost for the Canadian economy. Secondly, the listing of Saudi Aramco could have a huge impact on the bilateral relations between Saudi Arabia and the country of listing, which has the potential to affect future investment opportunities. Such investment deals tend to open the floodgates to more economic activity, and in bids to secure the Aramco listing, leaders from around the world have been flying to Saudi Arabia to convince the state that their exchanges’ represent the most attractive option.
There are a few factors that the Saudi state would consider while choosing an ideal location for an IPO. The first point that comes to mind is the geopolitical environment of the potential country for listing. It is primarily due to this reason that Toronto has an edge over some of the other countries. Saudi Arabia and Canada have long had a strong bilateral relationship focused on energy security, trade, and economic interests. When one compares this to the United States, a completely different picture emerges. For one, a new anti-terrorism law allows families of the victims affected by the 9/11 terrorist attacks to sue Saudi Arabia, which is likely to breed anti-Saudi sentiment in the US, and may see Aramco distancing itself from the United States. There may however be a mitigating factor for the NYSE that lies in the history of Saudi Aramco. The firm started as a joint venture between Saudi Arabia and the Standard Oil Company of California; This might soften the blow of the new law.
Secondly, the Toronto Stock Exchange offers a breadth of expertise in oil and gas financing, with oil companies having a market capitalization of C$325 billion. Canada-listed oil and gas companies raised 22 percent of global energy financing over the past five years. This size, coupled with the liquidity present in the Toronto market, presents a viable option for a listing.
In conclusion, the potential of a Saudi Aramco IPO has generated massive interest from various international markets, yet despite competing with larger exchanges such as the New York Stock Exchange and the London Stock Exchange, Toronto’s geopolitical environment and wealth of knowledge in the natural resources sector may make this underdog the eventual winner of the listing.
Photo: Saudi Aramco via http://www.arabianbusiness.com/industries/energy/382264-saudi-aramco-ipo-on-track-but-key-questions-remain-unanswered. Public Domain.
Disclaimer: Any views or opinions expressed in articles are solely those of the authors and do not necessarily represent the views of the NATO Association of Canada.