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Wed 10 Jul 2019 09:46 AM

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How did the UK Chancellor's charm offensive fare in Saudi Arabia this week?

Saudi Arabia has not announced where the listing will be held, but London, New York and Hong Kong have all vied for a slice of what could be the world's largest ever IPO

How did the UK Chancellor's charm offensive fare in Saudi Arabia this week?
Saudi Arabia's King Salman hosted Hammond for talks on Sunday, state media said, amid renewed prospects of an overseas stock listing of oil giant Aramco.

In a statement move, British Chancellor of the Exchequer Philip Hammond was accompanied by London Stock Exchange CEO David Schwimmer and investment minister Graham Stuart on a two-day visit to Jeddah earlier this week.

Saudi Arabia's King Salman hosted Hammond for talks on Sunday, state media said, amid renewed prospects of an overseas stock listing of oil giant Aramco.

Hammond's visit comes after Saudi Crown Prince Mohammed bin Salman said last month that state-owned Aramco's much-delayed initial public offering (IPO) would take place in late 2020 or early 2021.

Saudi Arabia has not announced where the listing will be held, but London, New York and Hong Kong have all vied for a slice of what could be the world’s largest ever IPO. Analysts have put a value on Aramco of about $1.5 trillion, assuming oil prices around $70 a barrel.

Biggest IPO in history

Wes Schwalje, COO of Dubai-based research firm Tahseen Consulting, told Arabian Business: “With the prospect of landing the biggest IPO in history, it shouldn’t come as a surprise that UK officials wanted to seize the earliest opportunity to make the case for the London Stock Exchange. The UK has long been courting Aramco since it announced its IPO."

Hammond's visit comes after a setback in relations last month when Britain temporarily suspended approving new Saudi arms export licenses that might contribute towards the kingdom's five-year bombing campaign in neighbouring Yemen.

Schwalje said: “Now that Aramco’s IPO is back on the table, this dispute and deterioration of affairs between the two countries, could also affect Britain’s ambition to list Aramco on the London Stock Exchange, a potentially huge win for the City and a big potential post-Brexit win.”

Brexit concerns

The visit was also well timed to coincide with ongoing Brexit concerns. Schwalje noted that the UK has made it ‘well known’ that it is interested in negotiating a free trade agreement with the GCC as a bloc or individual countries. 

The COO said: “Saudi Arabia and the UAE are key to realising this ambition. Building the bilateral trade and investment relationship with Saudi Arabia, the UK’s biggest trading partner in the GCC with exports surging toward $8 billion, could fast track these efforts. 

Aramco’s potential listing on the London Stock Exchange not only offers a significant financial gain for the City, but it will also help maintain London’s status as Europe’s financial hub amid speculation of a financial exodus post-Brexit.”

Scott Lucas, professor of international politics at the University of Birmingham in the UK, commented:  “The UK needs trading partners if and when it departs the European Union, and Saudi Arabia is a potentially lucrative partner.”

However, Lucas predicted there are challenges ahead for the Saudi Arabia-UK relationship. 

“The seriousness of Hammond's mission is shown by his high-level delegation, including the London Stock Exchange CEO and UK investment minister… But the UK government cannot escape the cold reality that, with the uncertainty and economic consequences of Brexit, it is dealing from a position of weakness. 

“Its leverage for a favourable economic and political bargain has been sharply limited. And the Saudis know this,” the professor said.

Forging ties

The UK-Saudi Arabia Strategic Partnership Council was launched in March 2018, amid Brexit negotiations and an uncertain economic future for Britain post-Brexit. The Council has identified several opportunities for enhanced economic collaboration in education, financial services, entertainment, healthcare, technology, and defense. 

According to Schwalje, “The UK-Saudi Arabia Strategic Partnership Council is potentially the foundation for negotiations on a free trade agreement between the UK and Saudi Arabia or even the GCC.”

A report published on Monday by the UK government referred to Hammond’s latest visit as the first ‘economic and social pillar meeting’ of the UK-Saudi Arabia Strategic Partnership Council.

The statement said that several commercial opportunities were agreed during the strategic meeting, including a £100 million ($124 million) contract with manufacturer De La Rue to help tackle illicit trade by introducing a digital tax stamp solution for soft drinks and tobacco products sold in the kingdom; a full banking licence for British bank Standard Chartered; and a venture capital licence for Hambro Perks.

Hammond said: “Saudi Arabia continues to take positive steps towards a more modern and diverse economy though its Vision 2030 plan.

“The UK’s experience and expertise mean we are in a unique position to offer Saudi Arabia support with their economic diversification. More investment and more trade benefits both of our economies.”