Bruised bankers seek consolation prizes after shelved Aramco IPO

Dubai

INVESTMENT banks which lost out on big payouts for the work on the shelved listing of oil giant Aramco are lining up for a raft of other projects as Saudi Arabia pursues reforms.

Banks including JP Morgan and Morgan Stanley worked for months to prepare what would have been the biggest ever stock market debut. But the plan to sell 5 per cent of the company for a targeted US$100 billion was pulled.

The bankers were paid retainer fees but were expecting that around US$200 million would be shared among all the banks involved when the deal was done.

Now, they are pinning their hopes on other projects from a privatisation programme that is part of Riyadh's economic reform plan to loosen its reliance on oil.

Without the funds from the Aramco sale, the government is looking to raise money in other ways, creating new opportunities for the banks, bankers say.

Teams from JP Morgan and Morgan Stanley that worked on the IPO have been shifted to advise on Aramco's planned acquisition of up to US$70 billion in petrochemicals firm Saudi Basic Industries (Sabic), three people familiar with the details of the transaction said. HSBC, which was also an adviser on the Aramco IPO, is expected to play a role in putting together the debt to fund that purchase, they said.

One of the sources said the issue could exceed the 2016 sovereign bond issue of US$17.5 billion, which was a record for the kingdom.

Aramco said in August that it was in "very early-stage discussions" with the kingdom's Public Investment Fund (PIF) to acquire the stake in Sabic but has not said how it will finance the deal. Spokespeople for JP Morgan, Morgan Stanley and HSBC declined to comment on their role in the Sabic deal. None of those banks have confirmed they were involved in the Aramco IPO.

Other deals are expected to be forthcoming. "The PIF (sovereign wealth fund) has had to reconsider its budget in the last three months, after finding out that they wouldn't be getting US$100 billion from the Aramco IPO right away," said a banker in Saudi Arabia. "So there's been a flurry of activity as they look to raise cash in other ways. A lot of these are smaller deals, US$1 billion here and there, but all geared towards financing their commitments for big infrastructure projects without slowing down their timelines."

After Reuters reported recently that the Aramco deal had been shelved, Energy Minister Khalid al-Falih said the government was committed to conducting the IPO at an unspecified date in the future.

The bankers are nevertheless wary after the Aramco experience. It highlighted the hurdles of doing business in a country governed by an absolute monarchy where public protest and political parties are banned. It also added to uncertainty after scores of top royals, ministers and businessmen were rounded up in an anti-corruption campaign last November.

The preparation for the listing was launched by Crown Prince Mohammed bin Salman two years ago and some bankers had flown to the kingdom hundreds of times to work in the Dhahran camp, a gated compound for the oil group's residents. A different source said Aramco had demanded that it deal only with the very top bankers. Another person familiar with the Aramco deal said he had made more than 20 trips to Dhahran over 18 months but with little to show for it. He said his team would "give the same presentation each time without getting much feedback".

Bankers also say the fees are modest in comparison to those paid by other countries. "The deal flow is huge but there's a worry that the fees coming from these projects are low," said a Gulf-based banker who spoke on condition of anonymity. "Saudi Arabia is lower than Hong Kong and Dubai when it comes to fees," he said. "It's all substandard."

Typical fees for banks doing IPOs in more developed markets are around one per cent of the overall deal while estimates from bankers and analysts for an Aramco IPO was 0.2 per cent. The 35 banks that worked on Chinese Internet giant Alibaba's US$21.8 billion float, led by six main underwriters, pocketed an estimated US$300 million among them, according to Thomson Reuters data. REUTERS