For the client who has everything, nothing is too much trouble. Rolls-Royce Motor Cars has just unveiled a bespoke coupe called the Sweptail. There is only one Sweptail, modelled after the lines of a yacht and reportedly costing £10m, built for a super-wealthy customer for whom the standard Rolls is not enough.
The buyer is anonymous, although it is a fair bet that anyone who wants his car to match his boat, with a compartment for his favourite champagne produced in the year of his birth, is an oligarch of some stripe. Perhaps he hails from Russia or the Gulf, where billionaires tend to get their way. This brings us to the initial public offering of Saudi Aramco, for which the world’s stock exchanges are fiercely competing. If it goes ahead next year, which is still a big “if”, it could instantly become the world’s biggest public company, with a valuation officials hope will reach $2tn, and unleash an economic transformation of the kingdom.
The choice of venue has narrowed to London and New York, but the company, and the royal family that controls it, does not want an off-the-peg flotation for their crown jewel. They and their highly paid legal and financial advisers seek the bespoke Rolls-Royce of IPOs, shaped to order.
In New York’s case, that means President Donald Trump overturning last year’s law allowing relatives of the World Trade Center attack to pursue the kingdom from which some hijackers hailed. White & Case, Aramco’s legal adviser, has also warned about class action lawsuits and pressure from activist investors akin to the campaign against ExxonMobil on climate change. In London’s case, it means seeking to have the rules for IPOs relaxed so that Aramco could float 5 per cent of its equity, rather than the 25 per cent usually required for premium listings. The alternative is a “standard” flotation, which the UK listing authority regretfully admits “implies second best”. Which self-respecting Arab monarch settles for second best?
With Theresa May visiting Saudi Arabia to lend the prime ministerial seal of approval to the London Stock Exchange’s bid for the Saudi Aramco IPO, regulators are scrabbling to make it work. Their latest wheeze is a new “international listing standard for mature and successful companies” that sounds suspiciously as if it was crafted for a particular big Gulf oil company. But IPOs are not like Rolls-Royces, where there is nothing wrong with any wealthy buyer picking the colour, the leather and the bodywork he or she wants. They have to be comparable and to place similar obligations on all issuers. That is how the market must work in order to flourish. The point of listings rules is to attract as many companies as possible while ensuring they are trustworthy. There is a tension between the two – laxer rules can lure more issuers in a race to the bottom – but in the end, as the Financial Conduct Authority noted recently, “high corporate standards [lead] to high levels of investor confidence and, in turn, a vibrant market.” London should know it well enough. Only four years ago, regulators had to tighten the rules after a rush of commodities companies controlled by oligarchs – notably Eurasian Natural Resources Corporation from Kazakhstan – hurt its reputation for transparency. Investors suffered from the over-eagerness to bring international listings to the UK at any price. Saudi Aramco is not another ENRC. It is a professionally run company with its roots in the US industry. It was founded in 1933 as a Gulf concession to Standard Oil Company of California and took on the predecessor companies of ExxonMobil as shareholders in 1948. Aramco’s operational independence has yielded dividends – 90 per cent of government revenues come from oil.
This does not obviate all concerns, though. No matter how distinguished the independent directors it appoints, outside shareholders will be in a small minority – at most 5 per cent initially. Mohammed bin Salman, the 31-year-old deputy crown prince behind the IPO, would shift Aramco’s ownership to its sovereign wealth fund, but his family remains in ultimate charge. Nor is it a model of transparency – there has long been a blurred line between Aramco projects and public works, with the company building infrastructure, hospitals and schools. Its estimates of oil and gas reserves are opaque and must be independently audited. It has a history of not needing to answer to anyone outside the royal circle. Aramco is, in short, exotic and selling a tiny stake in so unusual a company through a conventional IPO is bound to be a stretch. The London Stock Exchange craves post-Brexit affirmation and business in general – overseas companies have ended secondary listings – but cutting a bespoke deal for Aramco is not the answer. So far, there is no more sign of London investors wanting to relax the premium listings rules for Aramco than of US lawyers being willing to grant it a free pass from litigation. The UK Investment Association insists that the 25 per cent minimum requirement must be “preserved at all costs”. There are some things that oil money should not buy.