Frank Kane

Once the record-breaking initial public offering (IPO) of Saudi Aramco — the world’s most profitable company — is finally ready for launch on the Saudi Stock Exchange (Tadawul), the Kingdom will start to seriously consider which foreign stock market to choose for the international element of the listing. Tokyo is increasingly in focus for this part of the offering.

There was much speculation last week about an imminent announcement that the Saudi part of the IPO was ready to be announced, only for the shareholder — the Kingdom — to hold back at the last minute.

This decision mainly reflected a desire to include financial figures for the third quarter — the period that covered the attacks on Aramco facilities in Abqaiq and Khurais — in the IPO prospectus. This is surely a prudent and cautious thing to do, especially in the current volatile state of the global oil market.

Aramco recovered quickly and without serious loss of production from the attacks, but the big investing institutions like to see the evidence for themselves in the form of cold, hard financial figures. From Aramco’s point of view, it can only increase the eventual valuation to be able to show that the financial situation at the company was unaffected by the attacks.

Once those figures are in the public domain and the domestic flotation underway, the attractions of Tokyo should become all the clearer for the foreign part of the listing. This could be worth as much as 2 percent of the total, or $40 billion, if the shareholder gets its desired valuation.

The Tokyo Stock Exchange, with a total capitalization of $3.5 trillion, would have no difficulty digesting that. It has recently proven it can handle large IPOs with the $21 billion SoftBank flotation last December — the second-biggest IPO ever.

Moreover, Tokyo has a deep pool of institutional and retail investor liquidity in search of dividend income. Aramco has promised to set aside $75 billion per year in dividends, which will be music to the ears of investors in the low-interest-rate environment of Japan.

The Tokyo market — the third biggest in the world — has the status and capacity for such a large IPO. Its financial institutions are among the biggest and most efficient in the world, and have links with all the other major financial centers. In fact, with other big global markets beset by their own issues, Tokyo is beginning to look like the best option for Aramco.

New York has virtually ruled itself out because of its tough regulatory regime, London is mired in Brexit chaos and uncertainty, and Hong Kong — the former frontrunner in Asia — is in the grip of social and political upheaval. Tokyo offers stability and certainty in these volatile times.

The clincher seems to be the growing commercial relationship between Japan and Saudi Arabia. Some 40 percent of Japan’s crude comes from Aramco, and there are other growing financial links via the SoftBank Vision Fund. Cementing those links with the listing of shares in the biggest IPO in history is the next logical step.