Small Boutique for Aramco’s IPO

One can hardly assume that charity is behind Saudi Aramco’s decision to hire Moelis & Co as the sole independent advisor on its huge public offering.

The bank was set up just 10 years ago, by former UBS banker Ken Moelis and his team. It has grown significantly since then and currently employs 650 people worldwide. But it is still dwarfed by banks such as JPMorgan, Morgan Stanley and Goldman Sachs that typically dominate the IPO market.

Moelis will advise Saudi Aramco on who to pick as underwriters for what is expected to be the biggest IPO in history, planned for next year.

Officials in Saudi Arabia have said they expect the sale to value Aramco at around $2 trillion. The race between the usual suspects over wining the deal on the investment banking scene was a tough one. Moelis & Co as a relatively small and new investment bank did not seem like the frontrunner. The pitching went on for months.

Insiders say that Ken Moelis, the founder of the bank, who have never dealt with a transaction of this size, got the deal convincing the Saudis of their ability to navigate such a complex IPO. Riyadh will list 5 percent of Saudi Aramco, which is estimated to be valued at more than $2 trillion. The $100 billion in proceeds from the share sale would make it the biggest IPO ever.

Both sides have declined to comment.

Moelis’s sole existence in Saudi Arabia is its strategic alliance with Japan’s Sumitomo Mitsui Banking Corporation, which has signed an agreement with Aramco to cooperate on Saudi Arabia’s economic diversification plans.

As said, charity was definitely not the reason.

Maybe the answer is found in the interview with Khalid Al Falih, Saudi Arabia’s Energy Minister, with the BBC, in which he – like previously his colleague, the Foreign Minister Adel al Jubeir – was hopeful for good relations with President Trump. Since Trump’s phone call with King Salman, both parties seem to be eager to keep far away from any tensions and provocation. Despite Saudi Arabia seeing a threat from US shale gas (the Saudis keep saying it has no influence on the low oil prices) and Trump’s ambitions to put America first, it is likely that both sides are manoeuvring in how best to make business without getting in each other’s way. And benefiting most, of course.

Moelis & Co is well-connected in Washington. Ken Moelis bet on Trump at times when he was considered persona non-grata by the finance world. It may be that the selection of this bank is an indication that the Saudis want to announce a stock exchange listing in New York.