Underwriters saw shortfall as focus of sale shifted to local investorsBy Ben Dummett and Julie Steinberg
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 13, 2019).
The bulk of the banks leading the Aramco deal earned small fees of between $3 million and $4 million each for their roles in the world's largest-ever IPO, according to people familiar with the matter, after the energy giant sidelined the banks as it switched its focus to local investors.
The Saudi government briefly achieved its coveted $2 trillion valuation for Aramco Thursday.
Börsengang (IPO) STS Group AG
Saudi Arabian Oil Co., as Aramco is officially known, had tasked nine investment banks with leading the offering, which earlier this month raised $25.6 billion for the Saudi government from the sale of a 1.5% stake in the energy giant.
That eclipsed Alibaba Group Holding Ltd.'s $25 billion IPO in 2014 as the world's biggest.
Citigroup Inc., Morgan Stanley, Credit Suisse Group AG, JPMorgan Chase & Co., Goldman Sachs Group Inc.
and Bank of America Corp. are each set to earn between $3 million and $4 million for their work. Those totals may increase following the payout of additional incentive fees, some people familiar with the matter said.
Specifics around those payouts couldn't immediately be learned.
The three other global underwriters, HSBC Holdings PLC and local Saudi banks NCB Capital and Samba Capital, fared better, each earning at least $10 million, according to a person familiar with the matter.
These higher fees resulted in part from Aramco last month placing those banks in charge of overseeing orders for the offering.
The big global banks had long coveted a key role helping sell Aramco's IPO, both for the fees on the deal itself and for additional advisory and other work that might result from Saudi Crown Prince Mohammed bin Salman's plan to diversify the country's oil-dependent economy. The IPO fees were never expected to be that large, but they still fell short of what could be expected due to the Saudi government last month abandoning plans to market the issue to international investors.
That move came after many international investors balked at valuing Aramco at Prince Mohammed's initial target valuation of $2 trillion.
In response, the energy producer lowered its target valuation to $1.6 trillion to $1.7 trillion and decided to focus selling the issue to a more supportive local and regional individual and institutional investor community, a strategy it has continued to pursue to boost Aramco's valuation since it started trading on the Saudi Tadawul exchange Wednesday.
Typically, an IPO of Aramco's huge size would give the company leverage to negotiate some sort of discounted underwriting fees.
High-profile IPOs such as Facebook Inc.'s 2012 IPO generated underwriting fees of 1.1% of the offering size. That is at the low end of the 1% to 7% range that banks can command depending on the IPO venue.
Aramco did even better.
It is expected to pay a total fee of around $54 million to the nine global coordinators, which represents a fee of less than 1% of the total offering size.
Still, the ultimate fees earned by the underwriters could increase if Aramco decides at a future date to seek an international listing and use the same group of banks for that effort.
(END) Dow Jones Newswires
December 13, 2019 02:47 ET (07:47 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.