BY GEORGE HAY

Investment bankers are bracing for another extended round of what’s best called “Saudo-masochism”. Saudi Aramco’s stalled $100 billion stock-market debut is showing signs of life, eliciting the sort of frenzy that accompanied initial pitching of the deal in 2017. Yet with the first team of advisers set to change, the question is whether being jettisoned is a good thing.

Of the original leading counselors to Aramco, Wall Street boutique Evercore and mega-bank HSBC may have their roles reduced, Reuters reports. Whether this is the result of bankers briefing against rivals to a thin-skinned client, or mere Aramco caprice, is unclear. If true, it would still leave JPMorgan, Morgan Stanley, Moelis and Michael Klein on board. But they might look more like gluttons for punishment than masters of the universe.

Assuming a late 2020 listing at the earliest, banks would have to maintain teams in the kingdom. That’s a big cost commitment, especially given the probability that underwriting fees will amount to a fraction of the top rate, some 7%, normally paid in U.S. deals. Efforts to secure listings in New York or London, alongside Riyadh, led to investor pushback and political complications. That’s before vectoring in the outlandish $2 trillion valuation Crown Prince Mohammed bin Salman envisages for the absolute monarchy’s primary cash generator.

Adding to complexity this time around is whether the murder of journalist Jamal Khashoggi by Saudi agents last October has sapped institutional appetite for a piece of an entity closely entwined with the crown. The ease with which Aramco in April sold a $12 billion bond, and a prospectus that showed it earned $111 billion in 2018, may not guarantee support for overpriced stock in an ESG-focused investment climate.

Both Evercore and HSBC featured in the top five for 2018 Saudi investment banking fees, according to Dealogic, while HSBC leads this year. Either way, the point of enduring current thin gruel from Aramco is the hope of riches later, when Saudi opens the gates to foreign direct investment to achieve the crown prince’s 2030 economic vision. Yet Reuters reported in June that only one big foreign firm, theme-park operator Six Flags Entertainment, had so far committed to supporting such projects. If the bonanza proves to be a trickle, bankers’ toils will look thoroughly masochistic.

First published July 19, 2019

(Image: REUTERS/Maxim Shemetov)