B10| Friday, September 13, 2019 ***** THE WALL STREET JOURNAL.
U.A.E. Energy Minister Suhail al-Mazrouei, OPEC’s Mohammed Barkindo and Saudi Energy Minister Prince Abdulaziz bin Salman.MAHMOUD KHALED/EPA/SHUTTERSTOCKGlobalinvestmentbanksarehopingtowinfeesinSaudiArabia
asitlistsAramcoandpursueseconomicreforms.
Investmentbankingfees,2019year-to-date
Source: Dealogic
Note: Data excludes shelf equity deal, and short term and money market bonds.
HSBC
JPMorgan
GoldmanSachs
MorganStanley
Citigroup
SambaCapital
SaudiNational
CommercialBank
Moelis
Rothschild
Evercore
$million26191611108833Hong Kong and London ex-
changes into a group with an
18-hour trading day, in a deal
that would help deepen the
connections between China
and global markets.
Speaking from a London of-
fice a few minutes’ walk from
the LSE’s headquarters, he ad-
mitted to admiring LSE for
months and described the
saga as a corporate “Romeo
and Juliet” story—a typically
colorful turn of phrase.
“He’s a very successful
salesman,” said Christopher
Cheung Wah-fung, a lawmaker
in Hong Kong who represents
the financial-services sector
and is also chief executive of
brokerage Christfund Securi-
ties. “He always has a bunch
of plausible theories to defend
his arguments.”
HKEX didn’t make Mr. Li
available for comment.
The LSE proposal, the latestin a long line of mooted deals
involving the U.K. exchange,
has run immediately into
skepticism.
“It’s a bold move and one
that appears to have a low
chance of success,” said Neil
Wilson, an analyst at Safecap
Investment Ltd.’s Mar-
kets.com.
Mr. Li has spent a decade
talking about the opportuni-
ties from the two-way interna-
tionalization of China’s capital
markets, and joining forces
with LSE could be the biggest
step in realizing that vision,
according to a person close to
him.
One hurdle will be persuad-
ing the target’s board and
shareholders to scrap LSE’s
existing $14.5 billion deal to
buy financial-information pro-
viderRefinitiv HoldingsLtd.
Exchange deals are often
also fraught with political risk.The U.K. government could
veto this deal because LSE
forms a critical part of the
country’s financial infrastruc-
ture, according to people fa-
miliar with the matter.
Meanwhile, worries are in-
tensifying in Hong Kong finan-
cial circles over Beijing’s in-
creasing encroachment on the
territory, which has helped
fuel months of increasingly vi-
olent protests. Half of the
Hong Kong exchange’s board,
excluding the CEO, is ap-
pointed by the Hong Kong
government, which could po-
tentially add to the sensitivity.
HKEX shares fell 3.5% on
Thursday as its own investors
digested the deal.
Mr. Li got his start as an
offshore oil worker in main-
land China before entering
college. He spent a few years
as a journalist working for
China Daily, a state mouth-piece, and later earned a mas-
ter’s degree in journalism at
the University of Alabama.
He pivoted again and
earned a law degree from Co-
lumbia University. He worked
at law firms in New York be-
fore joined Merrill Lynch
China in 1994, becoming its
president in 1999. He joined
J.P. Morgan China as its chair-
man in 2003.
Unlike many Western ex-
changes, HKEX faces little
competition in its home mar-
ket for share trading, futures
or clearing, and is thus highly
profitable.
That means it has felt less
pressure than European or
U.S. rivals to diversify into ar-
eas like compiling indexes, or
to gain scale through acquisi-
tions.
The only notable overseas
acquisition came in 2012,
when it bought the LondonMetal Exchange for $2.12 bil-
lion.
That restraint has paid off
so far. Since Mr. Li took the
helm in January 2010, the gain
in the company’s shares has
more than doubled that of the
benchmark Hang Seng Index.
The group has a market value
of roughly $38 billion, accord-
ing to FactSet.
Instead, Mr. Li has focused
partly on linking mainland
China with global markets.
The exchange introduced
Stock Connect in 2014, a trad-
ing link giving foreign inves-
tors access to shares in Shang-
hai and Shenzhen, and letting
mainland investors trade in
Hong Kong.
By enabling easier buying
and selling of onshore shares,
the program helped persuade
influential index providers to
add Chinese shares to their
benchmarks.RecordofSuccess
TheHongKongexchangehasoutperformedthemarket
sinceCharlesLiwasappointedchiefexecutive.125–250255075100%2010 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19HongKong
Exchanges
&ClearingHangSengIndexTheownersoftheHongKongandLondonboursesare
amongtheworld’smostvaluableexchangeoperators.
MarketcapitalizationSource: FactSetCMEGroup
IntercontinentalExchange
HongKongExchanges&Clearing
LondonStockExchange
DeutscheBörse
Nasdaq
ASXShareandindex
performance$735billion
506- 2
31 .3
289
163
108
Charles Li, the head of
Hong Kong’s stock exchange,
has built his career and com-
pany’s success on China. Now
that could prove to be his big-
gest challenge.
The prospect of tighter con-
trol from Beijing is threaten-
ing the rule of law that under-
pins Hong Kong’s role as a
financial hub. And political
and security concerns could
help scuttle an unsolicited
$36.6 billion offer for theLon-
don Stock Exchange Group
Ltd., in what would be by far
his biggest deal.
The timing of the approach
to LSE was also notable. The
surprise move was aimed at
disrupting another deal that
would effectively put the LSE
out of bounds. But given shift-
ing political winds, the ex-
change could also find in the
future that it encounters a
frostier reception in the West.
The 58-year-old Mr. Li is a
voluble former lawyer, banker,
journalist and oil worker. For
much of his decadelong tenure
as chief executive of Hong
Kong Exchanges & Clearing
Ltd., he has focused on build-
ing closer ties between the ex-
change and its mainland Chi-
nese counterparts, staking its
growth on China’s increasing
wealth and global influence.
On Wednesday, Mr. Li
sought to sell the media on
the benefits of uniting the
BYSTEVENRUSSOLILLO
ANDSTELLAYIFANXIE
BANKING & FINANCE
Hong Kong Exchange CEO
Confronts China Challenge
Potential threat by
Beijing to capitalist
hub looms over bid for
London marketplace
By forging closer ties with China, Charles Li’s company could face a chilly reception in the West.ISAAC LAWRENCE/AFP/GETTY IMAGESGlobal investment bankers
launched the underwriting pro-
cess for the initial public offer-
ing of Saudi oil company
Aramco in Dubai.
Government-owned Saudi
Arabian OilCo. has so far cho-
sen nine banks to underwrite
its listing:JPMorgan Chase&
Co.,Morgan Stanley,Goldman
Sachs Group Inc.,Bank of
AmericaMerrill Lynch,Citi-
group Inc., HSBC Holdings
PLC,Credit Suisse GroupAG
and two domestic investment
banks, according to people fa-
miliar with the details.
The meetings are a sign the
financiers who shunned the
kingdom immediately after the
murder of journalist Jamal
Khashoggi are turning the page.
The IPO is expected to reap
billions of dollars for Crown
Prince Mohammed bin Salman’s
social and economic overhaul
program, which is aimed at di-
versifying the kingdom’s econ-
omy beyond oil and improving
Saudis’ standard of living. That
effort has come alongside a
crackdown on the domestic
business community and a si-
lencing of political dissent.
Bankers have shown they
are willing to move past the
murder to win business in
Saudi Arabia, but it is unclear
ByRory Jones
andSummer Said
in Dubai
andMaureen Farrell
in New Yorkwhether large numbers of for-
eign investors are ready to bet
on Prince Mohammed’s vision.
Foreign direct investment in
Saudi Arabia remains meager
and few international firms
have placed big bets on the
country since Mr. Khashoggi’s
murder.
Senior-level bankers were
slated to gather in Dubai
Thursday for the first meeting
of the underwriting team, the
people said. Aramco plans an
IPO in two stages: first, on the
domestic Saudi stock market,
before pursuing an international
debut next year or in 2021.
Aramco expects to list about
1% of itself before the end of
the year, in what Saudi analysts
are calling a movie trailer for
foreign investors ahead of the
international listing. Foreigners
can access the Saudi market
but local investors are expected
to subscribe to the IPO, limiting
global participation.
Prince Mohammed has said
he eventually wants to list 5%
and expects a valuation for
Aramco, the world’s most prof-
itable company, of about $2
trillion. Analysts estimate the
company has a value closer to
$1.5 trillion, based on financial
numbers released earlier this
year and the uncertain outlook
for oil prices.
Bankers who pitched for the
Saudi Aramco IPO, however,
put forward valuations above
$2 trillion, according to an
Aramco adviser familiar with
the process.Bankers Launch
Underwriting Plans
For Aramco’s IPO
The Organization of the Pe-
troleum Exporting Countries
and its oil-producing allies put
off any talk of further output
reductions at a technical
meeting Thursday, despite
growing evidence of a mount-
ing global supply glut and
slowing demand growth for
crude.The group instead stressed
the importance of adherence
to previously agreed output
curbs, in an attempt to coordi-
nate what some delegates to
the OPEC called “hidden cuts.”
“It is clear OPEC is getting
more serious about compli-
ance,” said a delegate from the
Persian Gulf region. “It is ef-
fectively a hidden cut, because
if countries like Nigeria and
Iraq do comply with the volun-
tary cuts, we will end up with
less barrels in the market.”
OPEC and its allies includ-
ing Russia agreed in June to
extend crude output cuts intotheir fourth year. At this
week’s gathering in Abu Dhabi,
the 14-nation cartel and a
group of 10 allied countries
led by Russia called on all pro-
ducers participating in output
reductions to “intensify their
efforts in pursuit of full and
timely conformity.”
OPEC and its allies could
deliver an output reduction of
around 400,000 barrels a day
by improving compliance, del-
egates familiar with the dis-
cussions said.
Ministers were circumspect
about the threat a potential
flood of Iranian oil back onto
the market posed to crude
prices. The exit of hawkish
U.S. national security adviser
John Bolton has sparked spec-
ulation that President Trump
is considering renewed negoti-
ations with Tehran.
Iranian inventories are near
record highs and an easing in
sanctions could release as
much as 700,000 barrels of Ira-
nian oil a day into global mar-
kets, according to Royal Bank
of Canada Capital Markets.
Efforts to bring OPEC na-
tions into line with the cartel’s
“Declaration of Compliance”come as sagging global eco-
nomic growth and weakening
oil demand has weighed on
energy prices. The price of
Brent crude oil, the global
benchmark, has dropped 24%
in the past 12 months.
In its closely watched
monthly market report
Wednesday, OPEC cut its oil de-
mand growth forecast for 2019for the second month in a row.
The OPEC meeting took
place ahead of an imminent
initial public offering of shares
in Saudi Arabian Oil Co.,
known asAramco. While no
official date has been an-
nounced, Saudi and Aramco
officials have this week sug-
gested that a two-stage do-
mestic IPO of Aramco will
come “very soon.”
That float has put SaudiArabia under particular pres-
sure to boost crude prices to a
level that will achieve Crown
Prince Mohammed bin Sal-
man’s hoped-for $2 trillion
valuation.
OPEC offered no signals of
possible production cuts to
come from its next full meet-
ing in December. However, del-
egates from Nigeria and Iraq—
countries that have repeatedly
flouted OPEC’s cuts—an-
nounced efforts to achieve
greater conformity at a press
conference led by new Saudi
energy minister Prince Abdul-
aziz bin Salman.
Nigeria will achieve full
compliance by October, said
the country’s oil minister,
Timipre Sylva.
Iraq’s oil minister, Thamir
Ghadhban, said that Iraqi
crude production would be cut
by 175,000 barrels a day.
“Everyone is fully aware the
situation in the market may
require a deeper cut and how
difficult it would be to get ev-
eryone to agree on that,” said
another Gulf-region delegate.
“So now it is a matter of get-
ting tougher on those who are
not complying.”OPEC Defers Decision on Oil Output,
Stresses Adherence to Existing Curbs
BySummer Said
andDavid Hodari
in Abu Dhabi
andBenoit Faucon
in London
2 4%
Decrease in the price of Brent
crude in the past 12 months