Sunday 21 January 2018

LSE eyes Saudi Aramco and Middle East IPOs after slump in deals

Dasha Afanasieva

The London Stock Exchange (LSE) is targeting more listings from companies in the Middle East, following a dearth of initial public offerings in the aftermath of Britain's vote to leave the European Union.

Money raised on LSE's equity markets fell nearly 40pc in 2016 to £25.6bn (€30bn). While funds raised from initial public offerings (IPOs) so far this year recovered slightly from 2016, they were much lower than in the previous two years.

The exchange is now turning to the Middle East, an executive said, seeking to convince investors it is attractive despite uncertainty about how Brexit will affect London - a factor that contributed to the recent collapse of LSE's proposed merger with Deutsche Boerse.

The biggest prize would be energy giant Saudi Aramco's planned global listing, and LSE CEO Xavier Rolet joined British Prime Minister Theresa May on a trip to Saudi Arabia last week, courting a slice of the IPO, which could be the biggest in corporate history.

Ibukun Adebayo, who is in charge of emerging markets at the LSE, said other opportunities abound.

"Immediately, we see the bigger opportunity emanating from the Middle East, and then the longer term prospects are from the Indian subcontinent, and then Africa," Mr Adebayo told Reuters.

The LSE is promoting itself through events in the region, helped by index compiler FTSE's office in Dubai.

It is targeting regulators and large companies, pointing to the large number of natural resources companies listed in London.

Mr Adebayo said he expected natural resources to continue to be a key sector for IPOs, but with fierce competition from exchanges globally and in the Middle East, as well as technical and regulatory hurdles, new business may be hard to secure.

The London exchange also has a chequered history with companies from resource-rich regions.

Prior to 2008 it courted Russian companies, landing depositary receipt listings of Sistema, Megafon and Gazprom. However three of those have delisted in the past six months, and it has faced questions over whether its entry requirements for them were too lax.

The capital markets division, which includes IPOs, represents just over a fifth of the group's income.

Getting an unlisted group onto the exchange, however, can drive revenue in bigger segments such as clearing and technology services. As a result, IPOs are a key battleground for exchanges.

"IPOs are a multiplier for derivatives, indices and clearing businesses: liquidity attracts liquidity," said Martin Steinbach, head of IPO and listing services at business services firm EY.

A huge coup for London would be the listing of Saudi Aramco, which is expected to raise $100bn(€94bn) out of an estimated $300bn (€282bn) in Saudi privatisation opportunities by 2022.

New York, Hong Kong, Singapore, Tokyo and Toronto are also seeking to win a slice of the Aramco IPO and Saudi officials have been meeting with exchanges to decide where the shares should be traded.

In the wake of the massive correction in oil prices, governments across the Middle East are looking to privatise their businesses to shore up state budgets. Adebayo says teaming up with local exchanges is key to the LSE's strategy.

"We consider London liquidity as complementary," he said, adding that the group is working on fully fungible dual listings.

The LSE boasts more than 40 companies from the Middle East and North Africa on the exchange but globally the proportion of cross-border listings is declining.

Bankers say with technology international investors can just as easily access stocks listed in local exchanges as in hubs such as London. (Reuters)

Irish Independent

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