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ANALYSIS: Is Aramco an attractive opportunity?

The Financial Conduct Authority has raised eyebrows in some City circles by clearing the obstacles to a partial listing of Saudi Arabia’s state oil company Aramco in the UK.

Some investment experts and large UK fund managers had expressed strong reservations about allowing an Aramco listing, citing concerns about special treatment with the Saudi government expected to retain 95% control of the company.

Yet one worry about this potential listing looks to have been resolved – if listed, the stock looks unlikely to sit within any UK indices so investors in passive strategies will not find themselves holding Aramco by default.

The prospect of an IPO has seen financial centres including London, New York, Hong Kong and even Tokyo vying for part of the float.

The firm hopes to be valued at around $2trn – some bearish analysts say it may be half that – but an IPO is an eye-watering prospect for investment banks, lawyers, advisers, brokers and City PRs, and would be a huge boon to London in the throes of Brexit.

The FCA consultation, which is set to create a new type of premium listing, also suggests it will not be included in the FTSE indices.

It says: “Under FTSE rules, companies must be included in the premium list in order to be included in the FTSE UK index series. However, an issuer in the proposed new premium listing category would also have to satisfy other criteria, including nationality criteria.

“Issuers that are neither incorporated, nor have their primary listing, in the UK would not be eligible under the rules set out by FTSE. This means that premium listing would not be expected to lead to inclusion in the UK series for most companies of the type that might wish to list in the proposed category under FTSE’s current rules.”

This has satisfied some critics.

Charles Stanley’s chief investment commentator Garry Williams had been vocal in his criticism. Previously he had pointed to the ENRC fiasco where the tycoon-owned Eurasian commodity firm was allowed to list 25% of its stock in London and gained a place on the FTSE 100. Investors including those in passive strategies lost a great deal of money in its complicated delisting in 2013.

Williams says: “It is not going to be include in the FTSE series so it solves my main objection. It is not going to be included in pension funds or tracker funds. Yet the word I would still use is ‘opaque’.

“They don’t have to declare transactions with the Saudi government as a result of this listing. But if they do list, as long as it is well-flagged as a very risky investment, then I don’t have major objections, except I wouldn’t put any of my own money near it.”

 

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