Saudi Arabia downgrades international banks' roles in 'failing' Aramco IPO

A number of top international banks' roles in the flotation of Saudi Aramco have been downgraded, reflecting Riyadh's scaling back its IPO ambitions.

MENA

2 min read

The New Arab & agencies

21 November, 2019

Saudia Arabia on Sunday valued state-owned energy giant Aramco at up to $1.71 trillion [Getty]

Saudi Arabia has sidelined international banks advising on the IPO of state oil firm Aramco, turning to local banks to sell shares to domestic buyers.

After spending years securing their roles in the oil firm's floatation, banks including JPMorgan, Morgan Stanley, Bank of America, Citigroup, Credit Suisse and other "global co-ordinators" and will have to submit their orders through HSBC.

HSBC, NCB Capital and Samba Capital are the only three global co-ordinators with oversight of investor orders.

One banker who spoke to the Financial Times on the matter said: "Global co-ordinator means you co-ordinate on a global basis. Here a global co-ordinator is neither."

The banks' effective demotion will come as a huge disappointment for those who were involved, as many international brokers were eyeing handsome rewards for sales. Financial firms had expected to land as much as $90 million in fees, according to a source cited by Reuters.

Saudia Arabia on Sunday valued state-owned energy giant Aramco at up to $1.71 trillion, missing Crown Prince Mohammed bin Salman's initial target of $2 trillion in what was expected to be the world's biggest IPO.

But the state's control of the company poses multiple risks to investors, as highlighted by the attacks on two key Aramco processing sites in September, which Saudi Arabia and the US blamed on their mutual foe Iran.

Aramco, the world's largest oil producer, said it would sell 1.5 percent of the company in an initial public offering (IPO) worth $24 to $25.6 billion, scaling down the kingdom's initial plan to sell up to five percent of the firm.

The success of Crown Prince Mohammad bin Salman's Vision 2030 is tied to that of the Aramco IPO, with billions of dollars expected to be generated from the offering to be funnelled into controversial mega projects across the kingdom.

S&P Global Ratings said the stock market debut could enable the kingdom to strengthen its financial position.

Critics, however, have cast doubt over the profitability of the company amid security risks in the region and rising concerns over the long-term use of carbon-based fuels due to climate change.