Via Financial Times

Global banks advising on the Saudi Aramco flotation have been marginalised in the final stage of the process, as the kingdom turns to local brokers to sell shares in the oil company to domestic investors.

International banks including JPMorgan Chase and Morgan Stanley spent years securing plum roles on the initial public offering, a quest for bumper fees that saw them overcome queasiness at working for an autocratic regime.

But information shared this week with the 25 banks on Saudi Aramco’s Riyadh IPO showed that only three of the nine “global co-ordinators” picked to lead the deal — HSBC and Saudi Arabia’s NCB Capital and Samba Capital — will actually have oversight of all investor orders.

The arrangement reflects Saudi Aramco’s decision to scale back the planned offering and focus the deal on local and Gulf investors after foreign fund managers balked at the kingdom’s valuation expectations.

Global co-ordinators including Bank of America, Citigroup, Credit Suisse, JPMorgan, Goldman Sachs and Morgan Stanley will now submit their orders to HSBC, people close to the deal said. NCB and Samba will compile the orders submitted to regional banks. The share sale is due to occur as early as next month.

One banker, speaking about the effective demotion of all the major international banks bar HSBC, said: “Global co-ordinator means you co-ordinate on a global basis. Here a global co-ordinator is neither.”

HSBC, which has fared better than other international banks, has a more established local presence, including a stake in Saudi British Bank, a full-service lender with extensive operations across the kingdom.

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Crown Prince Mohammed bin Salman, the driving force behind the IPO, had once sought to raise $100bn, from a 5 per cent sale of Saudi Aramco on a global exchange. He was adamant that the company was worth at least $2tn.

Despite bankers pitching for a role on the listing also telling Saudi authorities this could be achievable, negative investor feedback has forced the kingdom to revise its expectations. It now seeks around $25bn, from a 1.5 per cent sale on Riyadh’s Tadawul exchange, hoping to secure a pared-back $1.7tn valuation by relying heavily on local demand.

Many advisers were expecting to be rewarded handsomely for their work after years of preparations. It is believed that the downgrade in their roles since Riyadh shrunk its ambitions for the IPO will also imply a dramatic cut to the fees pool.

Banks had been expected to earn fees of 35 basis points of the proceeds, or around $90m at the high end of the range, said one person briefed on the remuneration structure and earlier reported by Reuters. The banks would have earned more if the deal had led to a higher valuation and resulted in a bigger piece of the company sold.

The $90m figure pales against the more than $250m in fees that banks working on the IPO of Chinese ecommerce group Alibaba took home after it raised $25bn in 2014.

Saudi Aramco, HSBC, Morgan Stanley, JPMorgan, BofA, Goldman and Credit Suisse declined to comment. NCB and Samba could not be reached.

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