April 20, 2017 / 7:46 AM / in 3 months

China's Aramco pitch puts pressure on Tokyo's bid

3 Min Read

FILE PHOTO: A Saudi Aramco employee sits in the area of its stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, September 27, 2016.Hamad I Mohammed

HONG KONG (Reuters Breakingviews) - China has upped the ante in the race for influence over Saudi Aramco's flotation. It has assembled a state consortium to act as cornerstone investors as it pushes for a Hong Kong listing. Rival exchanges in Tokyo and Singapore will need to step up to stay in the game.

According to a source-based Reuters report on Wednesday, China Investment Corporation (CIC), the $800 billion sovereign wealth fund, oil majors including Sinopec and PetroChina,, and state banks would join the group. The move, which would mean committing ahead of time to buying a large, fixed amount of stock during the listing, is meant in part to sway Aramco towards a Hong Kong listing.

Graphic: Bigger market: reut.rs/2otYiqU

The initial public offering, forecast to break world records at $100 billion, is certain to attract some Chinese sovereign funds whether Aramco lists in Hong Kong or on Mars. But launching at least part of the float in the special administrative region, which has struggled to find successful IPOs of late, would please Beijing. The mainland team will be more interested in the prestige gained from playing a role in the world's biggest listing than its price tag.

Riyadh is sensibly engaging with everyone. King Salman visited both China and Japan in March to talk up Aramco. Japan is still a contender; a Breakingviews analysis of market characteristics puts Tokyo in second place behind New York as a foreign venue for the oil giant. Japan also imported more Saudi crude than China last year.

Even so, the Middle Kingdom has extra strategic attractions. For one thing, China's total crude imports are far larger than Japan's, and demand is growing far more rapidly. There are also benefits in partnering with a rising naval power with major strategic interests in the Middle East.

Finally, letting China win doesn't cost much. Beijing hopes a big stake in Aramco will increase China's access to Saudi supply, but the total stake being floated is around 5 percent. Foreign leverage over Aramco will be kept minimal by design. The desert kingdom has a history of manipulating more powerful partners to serve its own interests; China will be no exception.

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