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Business

Britain woos Saudi Aramco IPO with $2bn loan guarantee

After Trump asked Saudi Arabia to list the oil giant Aramco in New York, Britain has raised the stakes for a London IPO. The UK government denies a $2 billion loan guarantee is an attempt to secure the listing.

Britain on Thursday confirmed it has offered Saudi Aramco a $2 billion (1.71 billion euros) loan guarantee as the oil giant considers whether to launch possibly the world's largest ever stock market listing in London.

The offer, which will help the energy giant buy British exports, is widely seen as part of lobbying efforts to secure an initial public offering (IPO) for the UK's financial hub, although the British government has denied this.

"This (guarantee) has nothing to do with the potential float, it's about increasing UK exports," a Treasury spokesman told the Agence France-Presse news agency.

Watch video 02:33

The $100bn deal

Saudi Arabia's government is to offer 5 percent of the world's biggest oil producer in an IPO expected next year. The listing will be shared between the Riyadh stock exchange and one other foreign exchange.

Authorities in the kingdom have valued Saudi Aramco at $2 trillion, although other analysts suggest it is worth a quarter or half of that figure.

The London Stock Exchange (LSE) is battling with New York, Tokyo and Hong Kong to hold the IPO, which is expected to raise up to $100 million.

Read more:Saudi Arabia's next-in-line: a hawk and economic reformer

Britain's loan guarantee will be supplied by the state credit agency UK Export Finance, which offers finance to foreign buyers to improve the country's trade balance

"UKEF's support will take the form of a $2-billion (1.72-billion euros) guarantee on bank lending," the government said in a statement.

Saudi Arabia oil field

An IPO offering five percent of Saudi Aramco is being considered to help pay to diversify the Saudi economy from oil.

Securing the IPO is so valuable to both London and New York's financial centers that US President Donald Trump last weekend admitted he had personally asked Saudi Arabia's leaders to consider New York, during a recent phone call. The US and Saudi signed a $100 billion military deal during Trump's visit in May.

London, whose status as a leading stock exchange is under threat from Britain's decision to exit the European Union, is equally as keen to secure the listing. British Prime Minister Theresa May flew to Riyadh earlier in the year to lobby for the deal, along with the LSE's CEO Xavier Rolet.

Read more: Is China looking to buy a stake in Aramco directly?

By offering the loan guarantee, Britain is seen as helping Saudi Arabia to diversify its oil-dependent economy, which the kingdom's leaders say is the reason for the listing.

Britain's financial regulator has proposed new rules to allow sovereign-controlled entities like Saudi Aramco to have their own "premium listing" category while being exempt from requirements such as how much of a company has to be floated.

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Saudi Arabia plans megacity investment hub

But some fund managers have criticized the plans, which they say would erode the rights of minority investors.

"HMG {Her majesty's government} guaranteeing a loan to ARAMCO would be a further lurch in descent to mercantilism," Nick Macpherson, a former top civil servant and now chairman of C. Hoare and Co private bank, said on Twitter.

Others have questioned why the energy behemoth would need a credit guarantee from Britain.

Read more: Saudi Arabia carries out major purge, cementing crown prince's power

Meanwhile, the kingdom's leaders have sought to ease investor concerns over the proposed listing, after an anti-corruption purge last weekend saw several Saudi princes, business leaders and political figures arrested or dismissed.

Among them was billionaire tycoon Prince Al-Waleed bin Talal, dubbed Saudi Arabia's Warren Buffett.

mm (AFP, Reuters)

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