Saudi Aramco listing lures banks with prospects of game-changing deals

Wall Street bank JPMorgan and independent boutique bank Michael Klein have already been picked to advise the country ahead of any listing. (Reuters)

Investment banks are jostling to take part in the listing of a chunk of Saudi Arabia's state-owned oil giant Aramco as a portal to the lucrative deals they expect to flow from the kingdom's plan to revamp its economy.

The prospect of new business will offer a respite for investment banks, struggling with dwindling revenue as the global economy slows and regulation eats away at their business.

"For banks, being on this (Aramco) deal is a game-changer for the league tables," said one senior executive at a European bank, declining to be named due to the sensitivity of doing business in Saudi Arabia.

Saudi Arabia's government released on Monday its National Transformation Plan, a 110-page list of policies and targets for 2016-2020 that aims to wean the economy off its dependence on oil.

It is part of a wider, long-term reform drive known as Vision 2030, announced by Deputy Crown Prince Mohammed bin Salman in April, and it includes the initial public offering of less than 5 percent of Saudi Aramco's value.

So big is the state oil company because of its rights to the kingdom's crude reserves, that selling even 1 percent of it would create the world's biggest IPO, Prince Mohammed said. He expects the IPO will value Aramco at at least $2 trillion.

Generally, government work across the world is poorly paid, but banks often vie for the contracts simply to build a relationship with the state in the hope of getting future business.

"The Aramco IPO of itself is not that interesting to us in terms of business," said a senior source at a big investment bank, speaking on condition of anonymity. "The fees won't be great, but it's about what other business will result."

Wall Street bank JPMorgan and independent boutique bank Michael Klein have already been picked to advise the country ahead of any listing.

A beauty parade, where banks will pitch for a role, is expected to be held in the coming months to determine what could be a roster of dozens of banks, both international and local, coordinating the share sale.

"We would be doing it for sure in part as it would lead to other things," a chief executive of a major bank said, speaking anonymously. "If we're not on it, then it's a problem."

Aramco subsidiary companies will also be listed, as will stakes in other publicly held companies, such as the stock exchange. Details in Monday's plan showed the Energy Ministry aimed to transfer all its power generation to "strategic partners" by 2020 and Riyadh will also privatise its water desalination agency.

Saudi Arabia also signalled it is adopting new strategies to invest is petrodollars, with the $3.5 billion purchase of a stake in U.S. ride-hailing firm Uber, advised by JP Morgan.

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Last Update: Wednesday, 20 May 2020 KSA 14:12 - GMT 11:12
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