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Global banks in line as Saudi Aramco considers IPO

by Neha Bhatia on Jan 10, 2016

Saudi Aramco is owned by the Kingdom's government. [Representational image]
Saudi Aramco is owned by the Kingdom's government. [Representational image]

JP Morgan Chase and HSBC are likely to win a role in the preparation and listing of an initial public offering of Saudi Aramco, the Kingdom's state-owned oil giant. 

According to Bloomberg, both banks boast a "presence" in the country that goes back decades. 

Aramco said on  8 January, 2016, that it is considering the floatation of a partial IPO, either by offering a part of the business or the sale of a stake in some of its subsidiaries. 

JP Morgan and HSBC helped arrange a $10bn (SAR37.5bn) loan for the company last year. 

Deutsche Bank, which advised Aramco on a $3bn (SAR11.2bn) joint venture with Lanxess in September, may also play a role in the system. 

Bloomberg said Aramco will also likely appoint some of its key local lenders from the Kingdom for the IPO; however, "no mandates have been awarded yet and Aramco hasn’t sent out requests seeking advisory roles", the report added.

Estimates state the oil giant could be valued at anywhere between $1tn (SAR3.75tn) and $10tn (SAR37.5tn), making it one of the world's largest companies, Bloomberg added, citing Jason Tuvey, an economist at researcher firm, Capital Economics.  

Declining oil prices have greatly altered the economics and funding models in Saudi Arabia, a historically petrodollar-dependent country. 

In December 2015, Hani Tammimi, the Riyadh Director of advisory practice at Colliers International covering central and eastern provinces, said that his company’s position on the Saudi market is neutral instead of being positive or negative.

“Liquidity is not the issue,” Tammimi said.

“The government has a debt-to-GDP ratio of 3% and there’s still a long way to go before talks of cash availability arise, but it’s difficult to predict the future,” he continued.

Tammimi added that the Kingdom’s government is incentivising the market with measures like land taxes, which could balance opportunities in certain real estate asset classes.

In November 2015, Saudi Arabia's Sadara Basic Services confirmed it had signed agreements for storage facilities and port services.

Sadara Chemical is a $20bn (SAR75bn) petrochem joint venture between Saudi Aramco and US-based Dow Chemical.

Both partner firms said the joint venture will proceed as scheduled despite the dip in global oil and petrochemical prices, according to Reuters.

However, Standard & Poor's Ratings Services (S&P) announced in September 2015, that it expects that some corporates and infrastructure issuers in the GCC to "feel the weight of lower oil prices".

In an industry report card it published at the time, S&P stated: "Corporate and infrastructure companies in the GCC face a weaker operating environment at present on the back of lower oil prices.

"Prices of oil have more than halved since June 2014, thereby slowing government expenditures, on which these companies largely depend.

"In some cases, limited government budgets prompted the cancellation of infrastructure projects," the report added.