Dubai: Banks that helped Saudi Arabia raise a record $17.5 billion (Dh64 billion) last week will next turn to an even bigger prize: landing a role on the potential $100 billion initial public offering (IPO) of Saudi Arabian Oil Co.
HSBC Holdings Plc, Citigroup Inc. and JPMorgan Chase & Co. were joint global coordinators on last week’s bond sale, which attracted $67 billion worth of orders from mainly US and European investors. Analysts say the bond’s success puts those banks and other lenders that worked on the deal in a prime position to land significant roles on the IPO as soon as next year.
The bond sale is “definitely a big plus for the banks that were involved,” said Murad Ansari, a Riyadh-based analyst at investment bank EFG-Hermes. “Given the size of Aramco’s IPO, I would expect quite a number of international banks to be involved in the consortium.”
The government intends to sell up to 5 per cent of Saudi Aramco as early as next year, according to Deputy Crown Prince Mohammad bin Salman. The sale’s estimated size of about $100 billion would make it the biggest-ever IPO, dwarfing the $25 billion raised by Chinese internet retailer Alibaba Group Holding Ltd. in 2014. A role on the deal is a sought-after trophy for bankers in a year when Postal Savings Bank of China Co., the largest IPO globally, raised about $7 billion. Aramco will announce “very soon” its list of banks and consultants, Chief Executive Officer Amin Nasser said this month.
Boutique Advisers
The company has already appointed some advisers, including JPMorgan and Michael Klein, a former Citigroup banker who runs his own firm, people familiar with the matter said in April. Klein is providing strategic advice to the government, while JPMorgan is working on preparations for the IPO, the people said. Aramco is also poised to choose an adviser from a list of boutiques after meeting banks including Rothschild & Co., Lazard Ltd. and Moelis & Co., other people familiar said in September.
The kingdom is taking unprecedented measures to shore up its public finances and reduce the economy’s reliance on oil. The country registered a budget shortfall of $97 billion last year, equal to 15 per cent of its gross domestic product, prompting the government this year to cut subsidies, wages and spending. In April, the kingdom held out the prospect of a role on the bond to banks that participated in a $10 billion loan to the government, two people with knowledge of the plans said at the time.
“The banks who arranged the jumbo Saudi debt issue last week will hope this shows a commitment to the region,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London. “That will be important in winning a role in the lucrative Aramco IPO.”
Bank of China Ltd., BNP Paribas SA, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Mitsubishi UFJ Financial Group Inc. and NCB Capital Co. also helped manage last week’s issue.
‘Fierce’ Competition
Competition for the Aramco IPO is going to be “fierce” and may drive down fees for banks, said Richard Segal, a senior analyst at Manulife Asset Management in London. HSBC, JPMorgan and Citigroup all demonstrated their capital-markets capacity with the roadshow they held for the government bond, he said.
HSBC and JPMorgan are the only two foreign lenders ranked among the top 10 IPO advisers in Saudi Arabia in the last decade, in second and fourth position respectively, according to data compiled by Bloomberg. Citigroup, which exited Saudi Arabia in 2004, set up a companywide task force to target opportunities in the kingdom and holds weekly calls to coordinate the push to do more deals there, people familiar with the firm’s strategy said last month.
“Because these are among the most recognised of global banks, they might also feel reputations would suffer if they were not involved in the transaction,” said Manulife’s Segal.