Some of the world’s top investment bankers gathered at a Riyadh palace on Saturday to deliver their final recommendations on a project that had consumed the government of Saudi Arabia for the past few years: the initial public offering of Saudi Aramco.
The financiers were there to meet Yasir al-Rumayyan, the state oil company’s chairman and the head of the country’s sovereign wealth fund, along with cabinet ministers and the company’s leadership.
Their message would disappoint the hosts: international investors were unwilling to buy shares in Saudi Aramco anywhere near the $2tn valuation long sought by the kingdom’s powerful Crown Prince Mohammed bin Salman.
No amount of sweeteners — from promises of higher dividends to bonus shares for local retail investors — had managed to change that reality.
At the heart of Prince Mohammed’s economic reforms, the IPO was at one time seen as a mechanism to raise $100bn from a 5 per cent share sale and help open up the Saudi economy to foreign investors. Not only was the size of the listing scaled back, so was its scope, along with any plans to list on international exchanges.
Only a handful of bankers there from the nine global IPO co-ordinators were selected to deliver their recommendations: Bank of America’s Soofian Zuberi, Citigroup’s Tyler Dickson and Morgan Stanley’s Henrik Gobel. Others, such as Mike Daffey from Goldman Sachs, were left to loiter in an anteroom. The banks declined to comment.
“There were basically two options — an international deal valued at $1.5tn, which could possibly have been walked up to $1.6tn, or a local version coming in at $1.7tn,” said one person briefed on the meeting.
The bankers’ nerves were already strained after they were left waiting for five hours, occupying the time by munching on sandwiches and sipping juice with their rivals. The meeting with Saudi officials lasted just 10 minutes.
The bankers were left to head off to their respective homes, from Riyadh to Europe, without knowing what the country’s highest authorities had decided. Despite years of jumping through hurdles to win business from Prince Mohammed, the sovereign Public Investment Fund and Saudi Aramco, advisers only found out the decision on Sunday morning.
It was then that Saudi Aramco announced its 1.5 per cent sale at a price that would value its shares at $1.6tn-$1.7tn and raise only as much as $25.6bn. Plans to market the shares directly in the US, Europe and Asia were also scrapped. The IPO would be focused on Saudi and Gulf investors.
“Rumayyan must have thought: ‘Why do we want to hand over our crown jewel to these internationals [for a lower valuation] when we could sell it to our own people,’” the person said.
At an earlier valuation meeting with Mr Rumayyan several weeks before, bankers had relayed the consensus of $1.1tn-$1.5tn garnered from initial investor meetings across the US, Asia and Europe.
“Rumayyan didn’t hear anything after he heard $1.1tn,” said the person. “He went mad.”
His irritation stemmed from the rosy valuations of $2tn or more forecast by the banks when they were pitching for the mandate earlier in the year, only for them to later lower these figures after feedback from potential shareholders.
Saudi Aramco said “the IPO remains open to international investors outside the United States”.
With international banks now viewing the listing less favourably, advisers are now turning on each other.
One accused a rival of having “whored themselves on the price range” while others spread stories of peers being castigated by Saudi officials. Another banker said: “There is real tension in the syndicate. These deals take on a dynamic and everyone turns on each other”
Seeing the prospect of years of work disappearing over the horizon, they are increasingly philosophical about the deal’s degeneration into, what one banker called, a “Greek tragedy”.