When members of Saudi Arabia’s royal family visited Japan last September and again in March, the Asian country made sure at least one message got through: Please list Saudi Aramco in Tokyo.

In September, Prime Minister Shinzo Abe delivered the message himself to then Deputy Crown Prince Mohammed bin Salman, while Japan Exchange Group’s chief executive, Akira Kiyota, tried to win King Salman’s approval in March. The conversations never stopped, with Tokyo executives visiting Saudi Arabia in October, December and again in March to explain why Japan would be ideal for the world’s largest oil company to go public.

 “It’s going to be one big epic event,” Kiyota said in an interview at the exchange headquarters in Tokyo. “If all goes well, we want other foreign companies to opt for Tokyo as a destination for their initial public offerings.”

The Saudi Arabian Oil Company, or Saudi Aramco, which is currently fully owned by the Saudi Arabian government, is prepping to go public in a deal that will value the company at as much as 200 trillion yen ($1.78 trillion), Kiyota said. Its market capitalization will dwarf that of Apple Inc., currently the world’s largest company, valued at about $777 billion. New York, London, Tokyo and Hong Kong are among several exchanges vying for the oil giant’s attention.

While New York and London are considered top contenders of what is expected to be the biggest IPO in history, Tokyo is betting Saudi Aramco will list at least a portion of its shares in Asia to broaden its investor reach. Altogether, the IPO could be as big as 10 trillion yen ($89 billion), Kiyota says.

In Asia, Tokyo’s natural competitor is Hong Kong, which has over the past decades established itself as the financial hub of the region, bulging with money from global investors. Tokyo, once the unquestionable financial center with more than 120 foreign blue-chip companies listed, lost ground as its asset price bubble popped in the early 1990s.

Tokyo Listings

To Kiyota’s relief, Aramco has given positive feedback during the many meetings it held with Tokyo executives, although executives did question why the number of foreign companies trading on the Japanese exchange has continued to decrease over the years. Only five foreign companies trade on the Tokyo Stock Exchange.

“Since the bubble burst, the Japanese economy’s existence as a capital market gradually weakened, making the cost to list shares here seem like a waste,” Kiyota said. “But when listing one to two trillion yen worth of shares, the cost would be small.”

Even during its heyday, foreign companies used Tokyo listing as a means to raise brand awareness in the region, often by offering a small amount of shares, according to Kiyota. BNP Paribas SA, Boeing Co. are among companies that used to trade on the Tokyo exchange but were delisted in 2009 and 2008, respectively.

Saudi Aramco would set itself apart with the sheer size of its listing and pave the way for Tokyo to be acknowledged as one of the “most favored” destinations for IPOs, Kiyota said. There would be ample liquidity for investors to trade shares, unlike previous cases where listing by a foreign company was often more of a formality than for raising a meaningful sum of money.

One of the things Kiyota has stressed to the oil giant is how different the investors accessible through Tokyo would be compared to those in Hong Kong.

“If it lists in New York, London and then in Hong Kong, they’ll be seeking money from the same pool of investors,” Kiyota said. “Tokyo is a different market. It has a lot of money on its own, held not by just institutional investors but a significant number of retail investors.”

Other Contenders

Tokyo isn’t the only place pulling for Saudi Arabia’s attention. The U.K. market regulator on Thursday revealed it may ease listing requirements for companies controlled by a sovereign country, as the London Stock Exchange tries to woo Saudi Aramco to Britain.

The Saudi Arabian company is expected to choose the destination for its IPO by the end of this year, preparing to go public around next autumn, according to Kiyota. Although no promises have been made on whether Saudi Aramco will opt to list any of its shares in Tokyo, Kiyota has his hopes. Aramco declined to comment.

“We have an edge against Hong Kong in terms of market size,” he said. “This is an opportunity for Japan to win the attention of a number of big foreign companies looking to go public.”

Source:
courtesy of BLOOMBERG

by Bloomberg News

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