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UK offers $2b loan guarantee in pursuit of Saudi Aramco's IPO listing

Deal Street Asia 2017-11-10 10:51:37

The U.K. government agreed to a $2 billion loan guarantee for . as Britain and the U.S. compete to host the state-run energy giant’s proposed initial public offering, likely to be the largest in history.

The unusually large export credit guarantee, designed to finance the purchase of British goods, will be seen by many as an attempt to help woo the IPO to the London Stock Exchange, the most viable venue for the international portion of the sale aside from New York. On Saturday, President Donald Trump said in a tweet that he’d love to see Aramco comes to the U.S.

A former senior official at the U.K. Treasury criticized the deal as an affront to free markets. The government “guaranteeing a loan to Aramco would be a further lurch in descent to mercantilism,” Nicholas MacPherson, who was the most senior non-elected official at Britain’s finance ministry until 2016, said on Twitter. He finished the tweet with the hashtag #stateaid.

A spokesman for the Treasury earlier confirmed a Financial Times report published on Thursday that the government was planning the loan. To put the $2 billion figure in perspective, in the past five years Britain’s export credit agency has provided 14 billion pounds ($18 billion) in support for U.K. sales abroad.

Prime Minister Theresa May visited the Saudi kingdom back in April and took with her London Stock Exchange Group Plc Chief Executive Officer Xavier Rolet as part of her pitch.

Britain’s main financial regulator, the Financial Conduct Authority, has already drawn criticism for proposed changes to listing rules that would make it easier for Aramco to trade in London. Andrew Bailey, who heads the regulator, said last month he didn’t believe the proposals would weaken investors protection as some fund managers have alleged.

The government is keen to attract Aramco as post-Brexit win. A listing would help politicians make the case that the U.K. is open for business and remains a financial hub even as it leaves the European Union and its single market.

The Saudis are currently deciding where to stage the offering. Choosing New York in addition to Tadawul, the Saudi exchange, could boost the longstanding strategic alliance between the two countries. Lawyers and bankers working on the IPO had concerns about a New York listing, however, in part due to to strict regulations about oil-reserves disclosure, accounting rules and the potential for litigation.

Despite the criticism, it’s not the first time that the U.K. has provided export credit to Aramco. It is one of several government agencies that helped finance the construction of Aramco’s Sadara chemical projects.

The latest export finance deal was also criticized by environmental groups who said that government shouldn’t be using its balance sheet to support the world’s largest oil producer.

“Bankrolling the multi-billion-pound industries that are driving more climate change makes no environmental or economic sense,” said Greenpeace’s U.K. executive directors, John Sauven. “It’s high time the U.K. government stopped acting like a benevolent fund for fossil fuel firms and started championing the clean technologies.”