Middle East: Moelis clinches Saudi Aramco advisory role
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Middle East: Moelis clinches Saudi Aramco advisory role

Boutique firm is first to win mandate; more could join, as IPO will be ‘very complex’.

Khurais oil field Saudi Arabia-R-600
The Khurais oil field in Saudi Arabia. Saudi Aramco’s listing is part of reforms
to wean the economy off oil

In February, Moelis, a boutique investment bank just 10 years old and more famous for working on restructurings and mergers and acquisitions than on IPOs, clinched the world’s most sought-after mandate in equity capital markets advisory: the listing of Saudi Aramco.

Saudi Aramco, Saudi Arabia’s state-owned oil and gas company, has appointed Moelis as independent adviser on its planned initial public offering. The original report on the appointment said Moelis had been chosen as the sole independent adviser, but Moelis may yet be joined by another. 

A source close to the firm tells Euromoney: “It may, it may not. It could be an Asian bank, a Middle East bank, a local bank, the large underwriting banks that are probably all vying for it. At this early stage, all options are on the table.

“To use a sporting analogy, Moelis is the quarterback, pitching to the people on the field,” the source explains. “So it brings in underwriters, it may even bring in an independent bank alongside it. The company has entrusted it to make sure it gets the right people on the team.”

Euromoney’s sister publication GlobalCapital reported on February 9 that Rothschild and Evercore have been mentioned as having pitched for business on the Aramco IPO, and that Michael Klein, the former Citigroup rainmaker, is also thought to be working with the company. JPMorgan and HSBC are also in line for roles, the newspaper added.

Big win

Even if Moelis were not the only adviser, the fact that it has been appointed on such a landmark deal, which may value Saudi Aramco at upwards of $2 trillion, is a big win for the firm. 

Moelis, which was founded by veteran investment banker Ken Moelis in 2007, has been active in the Middle East for several years. Its first notable client in that region was Dubai World, which Moelis advised first on an $8.5 billion project in Las Vegas and then on its $26 billion debt restructuring – a deal which drew particular attention and on which it acted as sole adviser. 

“This is not something that’s happened overnight,” the source says of the Aramco mandate. “Moelis has made a concerted effort in the Middle East.”

The Aramco mandate may have come as a surprise to some, however, as Moelis is less famous for its IPO work than it is for M&A and restructuring. The firm’s recent work in the Middle East has been rather heavy on M&A and light on public listings.  

The source says that listing Aramco will be 'very complex' and calls it an 'incredibly large mandate'

Moelis recently advised Financial Technologies (India) and FT Group Investments on the sale of their combined 27.3% stake in Dubai Gold & Commodities Exchange to Dubai Multi Commodities Centre; Dubai Aerospace Enterprise on its sale of StandardAero to Veritas Capital; DP World Limited on its $3.5 billion acquisition of Economic Zones World; and the Abraaj Group on the sale of its 49% stake in Network International to General Atlantic and Warburg Pincus. 

Moelis ran the Network International sale as a dual-track process, keeping both the M&A and IPO options open, but in the end the M&A route prevailed.

The source says that listing Aramco will be “very complex” and calls it an “incredibly large mandate”. That may explain why a second adviser may be needed. Aramco is thought to be the largest company in the world, but little is known about the intricacies of the business. Already, reports suggest the finances of Aramco and the Saudi state are so enmeshed that the task of disentangling them could severely hamper the process of listing the business.

Many questions remain unanswered. It is as yet unknown where the listing would take place, how much of the company would be sold and when the sale will happen. On that final point, observers now expect the IPO to happen no earlier than 2018, perhaps even 2019.

Vision 2030

The plan to list Saudi Aramco is part of a much broader reform plan, called Vision 2030. The plan, revealed in April last year, aims to wean the Saudi economy off oil, which funds the vast majority of the Kingdom’s budget. It is being spearheaded by the deputy crown prince, Mohammed bin Salman Al-Saud, who is also said to be directly involved in preparing Aramco’s listing.

Banks active in Saudi Arabia see a positive future for themselves in the Vision. But it is as yet unclear whether the Aramco IPO specifically will deliver high fees for the banks that work on it, or whether it will simply give them bragging rights and the prospect of future business opportunities with Aramco.

Saudi Arabia last year issued a $17.5 billion bond, its debut international issue and the largest emerging-market deal on record. Bankers interpreted the deal’s wild oversubscription – at one point, the book contained $70 billion of orders – as a sign that investors were buying into Vision 2030 and may yet buy into Saudi Aramco’s flotation.

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