By James M. Dorsey 25 August 2019
Saudi Arabia’s planned awarding of
mandates for the management of an initial public offering (IPO) by its national
oil company Aramco is likely to serve as a bell weather for how Riyadh balances
its relations with the United States and China.
In an early indication that Western
financial institutions like Goldman Sachs may be losing their near monopoly,
Saudi Arabia this week invited China’s biggest
Industrial & Commercial Bank of China Ltd (ICBC) and Bank of China Ltd to
pitch alongside major US, European and other Asian underwriters for the mandate
of what is expected to be the largest listing ever.
Analysts took the invitation to
Chinese institutions as a sign that Saudi Arabia was considering Hong Kong in
addition to London, New York and Tokyo as possible exchanges on which to list
the five percent stake in Aramco that would be on offer.
ICBC, the world’s largest lender by
assets, is the only major Chinese state-owned bank to have a commercial banking
presence in the kingdom. Bank of China’s London branch was a co-manager on
Aramco’s US$12 billion bond sale in April.
The invitation to the two Chinese
banks came as US investment bank and financial services giant Goldman Sachs was
believed to have significantly enhanced
its chances as the
result of a sustained high-level lobbying effort.
Goldman had failed to secure a
prominent role in 2017 when Aramco initially nominated major Western
firms to manage the
IPO. The offering was ultimately postponed after Crown Prince Mohammed bin
Salman failed to persuade the market to adopt his US$2 trillion valuation of
The success of the bond sale, months
after the killing of journalist Jamal Khashoggi, that attracted more than $100
billion of investor orders persuaded Prince Mohammed that he might be able to
pull off the Aramco offering. Goldman Sachs was the bond’s bookrunner.
Chinese state-owned oil companies
PetroChina and Sinopec offered to buy the stake
when the kingdom first announced
that it wanted to sell five percent of Aramco in the hope of raising US$100
The sovereign funds of Russia, Japan
and South Korea also signalled an interest in becoming cornerstone investors.
Granting a Chinese bank a leading role
in the IPO would further cement the kingdom’s pivot
It would underline Saudi Arabia’s ever
greater economic interdependence with Asia that it needs to balance with its
increasingly uncertain security relationship with the United States and Europe
and reliance on Washington in its struggle against Iran.
The kingdom’s relations with its
onetime main ally have changed as the United States becomes less dependent on
energy imports on the back of shale oil and renewables.
On the flip side, Saudi Arabia last
year accounted for some 12 percent of Chinese oil imports and its share has since
almost doubled. The
US-China trade war has prompted Chinese buyers to reduce oil purchases from the
United States and look elsewhere.
China and Saudi Arabia earlier this
year inked deals worth US$28
billion, including a
Saudi commitment to build a $10 billion
petrochemical complex in
China that will refine and process Saudi oil. Saudi Arabia has also invested in energy
assets in the United States.
Talk of Saudi energy investments in
China first emerged two years ago at the time that a possible direct Chinese
investment in Aramco was being touted.
Meanwhile, Saudi relations with the US
are troubled by a growing sense that the United States will
over time reduce its security commitment to the Gulf and mounting questioning in the US
Congress of the alliance with the kingdom as a result of its disastrous
four-year-long war in Yemen and the killing of Mr. Khashoggi.
Some analysts suggest that the
kingdom’s revival of the prospects of an Aramco IPO is a political ploy rather
than a serious effort to sell a stake in an asset that generates the bulk of
the state’s revenue. The revival coincided with Saudi plans to accelerate
privatization of other state assets.
The IPO “is wheeled out to investors
the same way an ailing, elderly Arab ruler is put on display — to remind subjects of
the immense power of patronage, and the threat of retribution for disloyalty. But it is also sad and tiresome, a
farce that everyone knows is a representation of the past and not where things
are headed. The Aramco IPO has become a regular reminder to those in the
finance world who depend on the Saudi government for fees, for access to deals
and for that slim possibility that the offering goes through. The message is
clear — stay loyal, just in case,” said Gulf scholar Karen Young, writing in
Ms. Young argued that Aramco’s
ambition to diversify into refining, gas and petrochemicals neatly aligns
itself with Prince Mohammed’s effort to diversify and streamline the Saudi
economy. She notes that expanding the company’s shareholder base could
complicate the oil company’s ability to execute its plans.
Said Ms. Young: “Any discussion of the
Aramco IPO always ends on the same note. It is a political decision, which the
company will have to be prepared to accept. Oil prices are not helping, as they
continue to be depressed, despite rising political tensions in the Persian
Gulf. If the government wants to keep its Aramco prize and be able to use its
energy resources to wield political influence, it is better off making a deal
with China to buy a small stake in the company.”
Source: Ipo Search Results