Labour challenges Downing Street on $2bn Saudi Aramco loan guarantee

Labour challenges Downing Street on $2bn Saudi Aramco loan guarantee

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McDonnell questions whether LSE hopes of hosting energy group flotation influenced deal

Britain’s opposition Labour party has flagged concerns about plans to provide a $2bn loan guarantee for Saudi Aramco that have emerged as London vies to host a stock exchange listing for the world’s largest oil producer.

John McDonnell, shadow chancellor, wrote to the government on Tuesday demanding answers on the proposed credit backstop for Saudi Arabia’s state energy group. Mr McDonnell asked what conversations had been held between ministers and their Saudi counterparts before the loan guarantee was agreed.

In his letter to Philip Hammond, the chancellor, seen by the Financial Times, the Labour MP asked on what grounds and on what evidence the decision had been made, and whether it was in the interests of the British public.

“Has the UK government’s attempt to secure the listing of the Aramco IPO on the London Stock Exchange formed the basis of, or in any way influenced, the decision to agree the loan guarantee and will you publish all correspondence you, cabinet colleagues or Treasury officials have had with UK Export Finance on this matter?” Mr McDonnell wrote.

The letter comes after the FT first reported the UK was close to finalising the $2bn facility through UK Export Finance, which provides overseas purchasers of UK goods and services with credit lines and guarantees.

Saudi Aramco declined to comment.

London is vying with New York and other stock exchanges to host the international listing of Saudi Aramco, which Saudi officials believe could value the company at $2tn, making it the biggest initial public offering in history.

Earlier this year Theresa May, the prime minister, visited Riyadh with Xavier Rolet, chief executive of the LSE, as part of the British government’s attempt to secure the flotation. President Donald Trump has also made a public bid, writing on Twitter that choosing the New York Stock Exchange would be “important to the United States”.

Although Saudi officials are considering different international stock exchanges, they are exploring options other than an overseas listing. Officials have recently said they could opt for a private placement and domestic listinginstead.

The increasingly aggressive campaign by the British government to win the offering has spurred criticism at home. It has coincided with plans by the Financial Conduct Authority to create a “premium” listing category that would exempt state-controlled entities from some rules that could harm minority shareholders.

The shadow chancellor demanded to know what “representations” ministers or UK regulators had received or made to Riyadh or the company itself regarding listing rule changes.

“What representations have you, any of your cabinet colleagues, including the prime minister, or representatives of the Treasury made to either the Financial Conduct Authority or the London Stock Exchange surrounding the loosening of the regulatory criteria the FCA uses in determining the requirements on companies controlled by government in seeking to list on the London Stock Exchange?”

The credit backstop would be one of the UK’s largest — the biggest so far was last year’s $2.1bn guarantee to Oman to support the purchase of BAE Systems military hardware.

Nicholas Macpherson, the top civil servant at the Treasury until last year, described the $2bn loan guarantee last week on Twitter as “a further lurch” in the UK’s “descent to mercantilism”.

One person familiar with the transaction had told the FT it was a “desperate” attempt to secure the Saudi Aramco IPO, while another had said the timing was “suspect” as it coincided with the UK bid.