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Saudi Arabia ‘bullies’ wealthy families to pump cash into oil IPO

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Saudi Arabia is pressuring wealthy families to buy in to the initial public offering of its state oil company, as part of a plan to achieve the $2tn valuation coveted by Crown Prince Mohammed bin Salman.

Eight people familiar with the talks said they were part of a plan to build confidence in the Saudi Aramco deal, which has been rocked by last weekend’s devastating attacks on Saudi Arabia’s oil infrastructure.

Four of the sources said the aim was to “strong arm”, “coerce” or “bully” some of the wealthiest families in the kingdom to become cornerstone investors in what has been billed as the world’s biggest ever IPO.

Many of the families targeted had members previously imprisoned in Riyadh’s Ritz-Carlton hotel in 2017 and 2018, in what the government billed as a crackdown on corruption. Some of the detainees said they were tortured, according to people aware of the matter. Most were later freed after they reached financial settlements with the state.

Those pressured over Saudi Aramco include Alwaleed bin Talal, the once flamboyant billionaire who was held in the Ritz-Carlton for more than three months. Many of his assets remain frozen in Saudi Arabia, and people familiar with the talks said it has been suggested he should use them to buy into the IPO.

A spokesman for Prince Alwaleed’s investment vehicle Kingdom Holding did not respond to a request for comment.

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Dozens of the wealthiest Saudi families have been approached, said a Saudi financier, who maintained the pressure was not overt. “It’s a big bunch from among the top 50,” he said.

As part of the campaign, one Saudi Arabian business magnate has been tapped for as much as $100m, according to one of his advisers, who declined to make his identity public.

The businessman, who was also detained in the Ritz, had earlier settled with the authorities, handing over assets and paying a monthly instalment to repay his alleged debt to the government.

“He is now being encouraged to do his patriotic duty for the kingdom,” the adviser said. “But there is a limit on how patriotic he wants to be.”

The pressure on local families shows the lengths the kingdom is going to in an effort to launch the IPO, three years after it was first announced. It also shines an uncomfortable spotlight on western bankers who have flocked to Riyadh to win roles advising Saudi Aramco or leading the placement.

Saudi Aramco declined to comment.

“The allegations that Saudi Arabia has imposed pressure on families and individuals, inside or outside of the kingdom, to participate in the Aramco IPO at any set price level is baseless and incorrect,” a government official said.

‏”The structure of the much-anticipated IPO of Aramco . . . has not been announced yet by the relevant authorities, and hence any speculation at this point is baseless,” the official added.

JPMorgan, Goldman Sachs, Morgan Stanley and Credit Suisse are among more than a dozen western financial institutions set to promote the IPO to investors in the coming weeks. It is not clear if they are aware of the pressure placed on wealthy families in the kingdom, which one of the people familiar with the matter said originated with Saudi Arabia’s government rather than the company.

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The $2tn valuation placed on Aramco by Prince Mohammed slowed down the listing process last year due to fears it would embarrass the royal — who is the son of King Salman and the de facto ruler of the country — if it could not be achieved.

Some banks that have been given roles on the IPO this month told Saudi officials they could hit a $2tn valuation, according to multiple people familiar with the process.

Many analysts think a valuation of $1tn-$1.5tn is more realistic. The company is the world’s largest crude producer and most profitable company, but investors fear it carries significant political risk.

Wealthy families, including many of the 300-plus royals and business magnates once held in the Ritz-Carlton, are therefore a key element of ensuring a successful, oversubscribed offering, bankers said.

“Some will find it more difficult to say no than others,” said another person familiar with the talks, describing Riyadh’s approach as a combination of “cajoling and bullying”.

One Saudi family approached by their relationship manager at a lender was told its assets frozen during the Ritz-Carlton affair could be transferred into Saudi Aramco stock.

“And why not?” one banker said. “[They] can’t access those funds in any case.”

Saudi Aramco plans to list up to 3 per cent of the company on the Tadawul exchange in Riyadh, including the portion allocated to cornerstone investors such as the wealthy families. That would raise $60bn for the kingdom. But the listing could still be limited to a 1 per cent stake.

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Big investors in the region, including Abu Dhabi and Kuwait, and several big Asian institutions, were also expected to be approached, said two people briefed on the IPO process. One person suggested that wealthy families in Egypt and Lebanon with ties to the Saudi royals would also be approached.

A plan to approach wealthy families as cornerstone investors was reported by Bloomberg last week. The report did not detail the pressure they are already being put under.

Additional reporting by Arash Massoudi in London

Via Financial Times

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