IFR 08.24.2019

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Aramco IPO: once


more with feeling


„ Equities Leads on debut bond well positioned

BY OWEN WILD

The promise of the largest IPO
in history has banks once
again competing to win roles
on SAUDI ARAMCOSûmOTATION û
two years after it was last
MANDATED
Requests for proposals have
been sent out inviting banks
to pitch to work on an IPO
now scheduled for 2020-21,
WITHûSEVERALûlRMSûBETTERû
positioned to be selected
having worked on Aramco’s
BONDûISSUEûINû!PRIL
Aramco’s US$12bn debut
international bond priced
inside the sovereign and
books peaked at more than
53BNû4HOUGHûTHEûBONDû
initially traded poorly, despite
the record-breaking demand,
banks that led the deal are
well positioned to lead the oil
giant’s foray into equity
CAPITALûMARKETS
JP Morgan and Morgan
Stanley were global
coordinators on the bond and
,AZARDûWASûTHEûCOMPANYSû
ADVISER
The two US banks were
mandated to lead the IPO in
2017 and are favourites to be
REAPPOINTED
JP Morgan has also built up
its emerging markets ECM
coverage with the
recruitment of Arabic-
speakers Nick Skaff and Ismail
Iraqi late last year from
$EUTSCHEû"ANK
,AZARDûISûTRUSTEDûBYû
governments around the
world giving it an unmatched
roster of completed
PRIVATISATIONûWORKû)Nûû
Moelis and Evercore were
mandated by Aramco as
ADVISERSûFORûTHEû)0/
Bookrunners on the
Aramco bond were Citigroup,
'OLDMANû3ACHS û(3"#ûANDû
.#"û#APITALû(3"#ûCOMPLETEDû
the 2017 IPO syndicate as the
bank that combines local and
INTERNATIONALûEXPERTISE

GONE FISHING
While bank and international
stock exchange chief
executives have made regular
visits to Saudi Arabia to support
their companies’ efforts to win
ROLESûONûTHEûPROSPECTIVEûmOAT û
ECM bankers have voiced their
doubts about the deal taking
PLACEûDUEûTOûITSûSIZEûANDû
COMPLEXITY
“I’m glad I was on holiday,”
said one banker of the recent
2&0SûARRIVAL
Bankers at several of the
previously mentioned banks
have said they cannot see the
DEALûHAPPENING
Achieving the Kingdom’s
ambition of a US$100bn IPO
on the back of a US$2trn
valuation of Aramco would
involve quadrupling the
current record of Alibaba’s
53BNû53ûmOATûINûû4HEû
largest amount of equity ever
publicly placed was the
53BNûFOLLOW
ONûINû
*APANSû.44ûINûû.44û 
$ETAILEDûlNANCIALû
information released as a
result of the bond has
provided greater clarity for
VALUATIONûPURPOSES
The expectation is that
Aramco will list on both the
local Tadawul exchange and
internationally as the domestic
exchange would be
overwhelmed by such a large
LISTINGû4HEûTOTALûMARKETû
capitalisation of Tadawul
LISTINGSûWASû32TRNû53BN û
ATû4HURSDAYSûCLOSE
Tadawul has now hosted its
lRSTûINTERNATIONALû)0/ ûWITHû
mall operator Arabian Centres
LISTINGûINûAû32BNû)0/ûINû
-AYû4HEûDEALûENDEDûJUSTûû
oversubscribed and
international participation
was disappointing at just
ûOFûTOTALûDEMAND û
INCLUDINGû'##ûINVESTORS ûBUTû
it is another step towards the
exchange being ready to play
a role in the landmark

TRANSACTION (^) „
Indeed, a domino effect could
easily play out if a Treasury
auction fails or the IMF decides
against making its mid-
September disbursement
because the country has failed
TOûHITûITSûAGREEDûUPONûTARGETS
“The immediate worst case
scenario is if the IMF doesn’t
make the disbursement and
everybody realises that the
emperor is naked,” said Arturo
0ORZECANSKI ûANûECONOMISTûWITHû
!MERICANû5NIVERSITY
“Then it’ll be the short-term
debt that gets them into trouble,
EVENûBEFOREûTHEûENDûOFûTHEûYEARv
Such troubles could lead to
MOREûCAPITALûmIGHT ûAûFURTHERû
depletion of reserves and perhaps
THEûIMPOSITIONûOFûCAPITALûCONTROLS
Under such circumstances, it is
important the country maintain a
healthy relationship with the IMF
not only for further disbursements
but as a lender of last resort, wrote
Siobhan Morden, an EM strategist
ATû!MHERSTû0IERPONTû3ECURITIES
The Fund will also be an
important arbiter during what
many feel will be an inevitable
DEBTûRESTRUCTURING
Investors are hoping that a
restructuring - if it happens -
will be less painful than when
Argentina restructured without
)-&ûINVOLVEMENTûINûûANDû
forced deep haircuts on
RELUCTANTûPARTICIPANTS
With IMF support, the
country could see a more benign
scenario much like what
Uruguay went through in 2003,
involving maturity extensions
and grace periods to give the
country some breathing space,
which for investors would imply
Aû
ûHAIRCUTûINû.06ûTERMS û
SAIDû3TOCK
However, with sovereign
bonds now trading in the high
SûANDûLOWûS ûMARKETSûAPPEARû
to erring on the side of a less
POSITIVEûOUTCOME
According to Michael Roche,
an EM analyst at Seaport,
foreign investors will likely
HAVEûTOûSUFFERûAûûHAIRCUTûIFû
Argentina wants to achieve a
DEBTûRATIOûOFûûOFû'$0û
ûTHEû
standard rule of thumb for
SUSTAINABLEûDEBTûDYNAMICS
If so, markets may be getting
ITûRIGHT (^) „
COMEûATûAûSIGNIlCANTLYûLOWERû
MARKûTHANû53BN
“They want to get [the IPO done]
as soon as possible but I don’t see
the urgency because they are so
UNPROlTABLEûANDûTHEûSTORYûISûSOû
UNCLEAN vû2AOûSAIDûh4HEYûREALLYû
NEEDûTOûGETûTHEûNARRATIVEûRIGHTv
Still, most observers doubt that
VALUATIONûPRESSUREûANDûSPECIlCALLYû
the prospect of a so-called “down-
round” will dissuade WeWork
from moving ahead with the IPO
next month, particularly given its
DEEP
POCKETEDûBACKERS
“They will go ahead and I am
sure there is going to be interest
at some price, even though there
are a lot of open questions,” said
IPOX Schuster’s Josef Schuster,
WHOSEûlRMûINDEXESû)0/S
“The press and the analysts are
doing the market a real favour in
bringing down the price, and it is
ALLûABOUTûVALUATIONv
CHALLENGE
A challenge for analysts has been
whether to value WeWork as a
real estate, internet or services
COMPANYû/NEûCITEDûCOMPûISû,3%
LISTEDûWORKSPACEûCOMPANYû)7'û
WHICHûOWNSû2EGUS 
)7'SûSHARESûHAVEûDOUBLEDûINû
the past year, though bankers
say it is not an ideal comparison
as the company is growing
nowhere near as fast and is
VALUEDûATûLESSûTHANû53BN ûAû
fraction of WeWork’s likely
VALUEûPOST
)0/
Some are already bracing
themselves for a similar
experience to the disappointing
debuts of fellow unicorns Uber
ANDû,YFTûEARLIERûTHISûYEARû
$ESPITEûAûVIBRANTûYEARûFORû53û
IPOs, shares of both companies
AREûDOWNûMOREûTHANûûSINCEû
THEYûWENTûPUBLIC
“There used to be a thought
in IPOs that large deals never
fail – the banks would not let
them - but with private
valuations running at giddy
levels, it just seems it’s now
become a give and take with
company, banks and buyers in
the public market and in this
case nobody may win this
battle,” said IPO Boutique
PARTNERû*EFFû:ELL (^) „

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