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Bankers Launch Underwriting Plans For Aramco's IPO -- WSJ

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09/13/2019 | 02:48am EDT

Underwriting team holds Dubai meeting as financiers no longer shun Saudi Arabia

By Rory Jones and Summer Said in Dubai and Maureen Farrell in New York 

Global investment bankers launched the underwriting process for the initial public offering of Saudi oil giant Aramco in Dubai on Thursday, a sign financiers who shunned the kingdom in the immediate aftermath of the murder of journalist Jamal Khashoggi are turning the page.

Government-owned Saudi Arabian Oil Co. has so far chosen nine banks to underwrite its listing: JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs Group Inc., Bank of America Merrill Lynch, Citigroup Inc., HSBC Holdings PLC, Credit Suisse Group AG and two domestic investment banks, according to people familiar with the details.

The IPO is expected to reap billions of dollars for Crown Prince Mohammed bin Salman's social and economic reform program, which is aimed at diversifying the kingdom's economy beyond oil and improving Saudis' standard of living. That effort has come alongside a crackdown on the domestic business community and a silencing of political dissent.

Bankers have shown they are willing to move past the murder to win business in Saudi Arabia, but it is unclear whether large numbers of foreign investors are ready to bet on Prince Mohammed's vision. Foreign direct investment in Saudi Arabia remains meager and few international firms have placed big bets on the country since Mr. Khashoggi's murder.

Senior-level bankers are expected to gather in Dubai on Thursday for the first meeting of the underwriting team, the people said. Aramco plans an IPO in two stages: first on the domestic Saudi stock market before pursuing an international debut next year or in 2021.

JPMorgan, HSBC, Morgan Stanley, Citi and Credit Suisse declined to comment on their involvement in the IPO.

Aramco expects to list about 1% of itself before the end of the year, in what Saudi analysts are calling a movie trailer for foreign investors ahead of an international listing. Foreigners can access the Saudi market but local investors are expected to subscribe to the IPO, limiting global participation.

Prince Mohammed has said he eventually wants to list 5% and expects a valuation for Aramco, the world's most profitable company, of about $2 trillion. Analysts estimate the company is worth closer to $1.5 trillion, based on financials released earlier this year and the uncertain outlook for oil prices.

Bankers who pitched for the Saudi Aramco IPO, however, put forward valuations above $2 trillion, according to an Aramco adviser familiar with the process.

"At one point it looked like it was a race for who is going to give the highest valuation," the Aramco adviser said.

A $12 billion bond sale by Aramco in April drew $100 billion in orders, giving an indication of how popular investors might view a listing, depending on the valuation.

Global investment banks have salivated at the chance of arranging an IPO for Aramco since 2016, when Prince Mohammed said he planned a listing.

Aramco initially chose three banks to underwrite the IPO: JPMorgan, a banker to the oil firm for decades; Morgan Stanley and HSBC, which has groomed many Saudi officials for office. Saudi officials then delayed the listing over transparency concerns and costs and then more recently started a new search for underwriters.

After Mr. Khashoggi's killing in Saudi Arabia's consulate in Istanbul last year, top executives including JPMorgan's James Dimon, HSBC's then-CEO John Flint and Credit Suisse's Tidjane Thiam all pulled out of the Saudi sovereign-wealth fund's flagship investment conference.

After the murder, Morgan Stanley CEO James Gorman was one of the first global leaders to publicly sit down with Saudi officials as part of a discussion at the World Economic Forum in Davos, Switzerland. Mr. Flint also flew into Riyadh in April for a panel discussion on the financial sector.

The managing director of Saudi Arabia's sovereign-wealth fund, Yasir Rumayyan, was last week made chairman of Aramco and his fund has helped screen investment banks on the Aramco IPO, people familiar with the pitching process said.

Goldman Sachs has made a particular effort in the past couple of years to woo Saudi officials, including Mr. Rumayyan, people familiar with the outreach said.

The investment bank made Dina Powell, former deputy national security adviser to the Trump White House and an Arabic speaker, the point person for Saudi officials. Ms. Powell is one of the bankers expected at the first IPO meeting on Thursday in Dubai, a person familiar with the process said. Richard Gnodde, CEO of Goldman International, also has played a major role, said another person familiar with the process.

The Aramco mandate is also a coup for Citi. The bank has sought a comeback in the kingdom after exiting the market in 2004. New York-based Tyler Dickson, head of global markets, is leading the bank's relationship with Aramco, according to an Aramco adviser.

Write to Rory Jones at rory.jones@wsj.com, Summer Said at summer.said@wsj.com and Maureen Farrell at maureen.farrell@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BANK OF AMERICA CORPORATION 0.58% 31.2 Delayed Quote.26.62%
CITIGROUP INC. 0.35% 72.06 Delayed Quote.38.42%
CREDIT SUISSE GROUP AG -0.12% 12.4 Delayed Quote.14.95%
GOLDMAN SACHS GROUP INC. 0.17% 209.6 Delayed Quote.25.26%
HSBC HOLDINGS PLC -0.34% 608.1 Delayed Quote.-5.64%
JPMORGAN CHASE & CO. 1.00% 124.79 Delayed Quote.26.56%
LONDON BRENT OIL -0.50% 59.26 Delayed Quote.9.51%
MORGAN STANLEY 0.89% 45.38 Delayed Quote.14.45%
WTI -0.44% 53.95 Delayed Quote.18.22%
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Sales 2019 115 B
EBIT 2019 49 698 M
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