BY PETER THAL LARSEN

Saudi Arabia’s $69 billion asset reshuffle marks the end of a dry spell for investment bankers who have been courting the desert kingdom. Saudi Aramco on Wednesday announced its long-awaited purchase of a 70 percent stake in Saudi Basic Industries Corporation, or SABIC, from the country’s sovereign wealth fund. Though the rejig is mostly an internal affair, financing the deal may scatter some rewards in the direction of the international financiers who have spent years cosying up to the oil giant.

The deal that ranks as one of the largest M&A transactions so far this year is something of a consolation prize for investment bankers. They have spent years wooing Saudi Aramco and the country’s ruling royal family in the hope of landing a role on the oil giant’s initial public offering. But that was shelved last year.

That IPO was supposed to raise $100 billion to help Saudi Crown Prince Mohammed bin Salman realise his ambition to diversify the economy away from oil. The SABIC deal achieves a similar outcome in a roundabout manner. Aramco will pay 123.4 riyals per share in cash – slightly below the closing price on Wednesday – for the Public Investment Fund’s controlling stake in the company. The remaining 30 percent will remain publicly traded.

The oil giant’s financial resources are opaque, but it is expected to issue bonds to help finance the deal. Saudi’s energy minister said earlier this year it could raise about $10 billion. That and related financing will give banks including Goldman Sachs, JPMorgan, Morgan Stanley, Citi and HSBC an opportunity to reap some benefits from their efforts in the kingdom – even though fees on a bond issue are generally much slimmer than the rewards for arranging a massive equity offering. Beefing up Aramco’s downstream operations also enhances its appeal. The company says it plans to as much as double its global refining capacity to 10 million barrels per day by 2030.

The bond offering will test international appetite for Saudi investments, which understandably waned in the immediate wake of the brutal murder of journalist Jamal Khashoggi by Saudi agents in early October. Bank executives faced intense international scrutiny for their decision to keep working for the regime. The SABIC deal means it’s payback time.

First published March 27, 2019

(Image: REUTERS/Faisal Al Nasser)