What ‘Aramcologists’ say about biggest IPO in history

Much like the now-obsolete art of “Kremlinology” — the study of the inner workings of the Soviet political system via analysis of announcements and reports — there is now a growing field I like to call “Aramcology.”
The forthcoming initial public offering (IPO) of Saudi Aramco is of such importance to the economic future of the Kingdom and its citizens that every small news item about, or company announcement from, the Saudi oil giant is sieved, weighed and analyzed by a growing global circle of Aramcologists, in which I include myself.
I imagine the world’s biggest investment banks, lawyers, accounting firms and consultants — which stand to make aggregated billions of dollars from the IPO — have their own Aramcology departments full of bright young things all eagerly devouring and interpreting snippets of information that come out of Dhahran. 
Earlier this week, speculation went into overdrive with reports from Bloomberg and Reuters that a more-or-less definitive list of financial advisers had been drawn up and invited to pitch their proposals for the IPO.
Most significant among the list of names the two agencies produced were three banks that had hitherto not been publicly linked with the IPO process: Goldman Sachs, Citibank and Deutsche Bank. They were added to a list of potential advisers, with a global “book-running” (price setting) role in the IPO, alongside existing names HSBC, JP Morgan and Morgan Stanley.
Add in other smaller advisory firms already linked to Aramco, like Moelis & Co., Evercore, and the American financial wizard Michael Klein, and that becomes a pretty comprehensive list of the most powerful and influential financiers in the world.
Both Reuters and Bloomberg said that none of the named banks would comment on their reports, and the bankers I have spoken to since are similarly insisting on official silence. But there is enough off-the-record guidance and intra-bank gossip to suggest that the reports are largely accurate.
 

Hiring the world’s biggest and best banks suggests a global ‘big bang’ flotation is still on the cards.

Frank Kane 

If so, what do the reports mean for the IPO? Chewing it all over with fellow Aramcologists, we agreed on a few broad themes.
First, hiring the world’s biggest and best banks means that neither Aramco nor the owner, the government of Saudi Arabia, has given up on the idea of a global “big bang” flotation for the company.
The idea of a $100 billion IPO of 5 percent of the total shares — the biggest in history and four times the size of the current record-holder — was floated along with the original announcement of the intention to privatize part of Aramco under the Vision 2030 strategy to reduce the Kingdom’s economic dependence on oil.
Then, late last year, some doubt was cast on the global IPO notion when reports emerged of a possible private sale of shares to a foreign investor; and it was further complicated when the Tadawul, the Riyadh-based stock exchange, announced it was confident it could manage the sole IPO “exclusively” itself.
The conventional wisdom was that Riyadh would have difficulty digesting such a big share listing on its own, but you have to take the market’s declared self-confidence at face value. The opening up of the Saudi financial markets — accelerated by recent news that foreign companies could own up to 49 percent of a domestic-listed company — means that the world could come to Aramco, rather than Aramco go to the world. All that financial firepower would certainly ensure a successful domestic IPO.
But it would probably be a case of overkill to have all those “masters of the universe” aimed just at the Riyadh market. The Aramcologists think the new, longer list of advisers means that Aramco and the government have still not given up on the global IPO idea, while retaining a Tadawul element. 
The origins of most of them further implies that the New York Stock Exchange is still very firmly in the Kingdom’s sights as a listing venue. The top four US investment banks — Goldman, Citi, JPM and Morgan Stanley — comprise New York’s finest, and their presence would be essential to overcome some of the obstacles to a Wall Street listing.
Whether this is instead of, or in conjunction with a listing in London, Hong Kong or elsewhere, remains to be seen. But for the Aramcologists, the introduction of Goldman and Citi into the thinking would mean NYSE is still the preferred place for a foreign listing — though don’t rule out dark horse NASDAQ.
The final point that emerges from the latest bout of Aramcology is that the IPO — in either domestic or global form — is on track for this year. Aramco executives and the government have committed themselves to a 2018 deadline, and while there would be no material difference should this slip into next year, policymakers usually like to keep their promises. The combined power of eight of the biggest banks in the world will help them do this.

• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter
@frankkanedubai