Complex Made Simple

Saudi IPOs poor in fee payments, still attract top banks

Saudi may be producing many IPO opportunities for global banks to rake in and generate serious profits. But it’s simply not the case

Saudi Aramco’s record offering in 2019, which raised almost $30 bn, paid out just over $100 mn Lenders and advisers including are set to share $42 mn in fees from ACWA Power’s IPO ADNOC raised more than $1.1 bn from an 11% sale of shares in its drilling unit through an IPO

Saudi may be producing many IPO opportunities for global banks to rake in and generate serious profits. But it’s simply not the case.

For example, despite attracting $125 billion in orders from investors for an initial public offering of Saudi Telecom Co.’s (STC) internet-services unit, banks including Morgan Stanley and HSBC Holdings Plc are set to share just about $12 million in fees, according to an STC prospectus.

That’s just 1.3% of the offering value, compared with an average of about 5% or more for IPOs in the U.S. or Europe.

IPO riches have yet to materialize for global banks despite a bonanza of share sales this year. JPMorgan Chase & Co., Goldman Sachs Group Inc., and Citigroup Inc. have still flocked to the kingdom, hiring teams on the ground and sending in their top executives to sway local officials in the hope of winning advisory roles.

Even in the case of Saudi Aramco’s record offering in 2019, which raised almost $30 bn, it paid out just over $100 mn split between more than 20 banks, with the bulk of the fees going to Saudi lenders after foreign investors didn’t take part in the deal.

A bigger payday awaits investment banks working on ACWA Power, Saudi Arabia’s first over $1 billion initial public offering since Aramco.

Lenders and advisers including JPMorgan and Citigroup are set to share $42 mn in fees from ACWA Power’s IPO that launched just after the offering by STC.

While that representing about 3.5% of the $1.2 bn deal size, banks were mandated more than 3 years ago, meaning the return over time is modest.

The next sizable IPO is that for Saudi Tadawul Group likely in Q4.

 More on STC and ACWA

STC completed the retail and institutional subscription to the IPO raising $966.35 mn.

The company recently priced shares of Solutions by STC, final allocations and refunds of which have yet to come, at 151 riyals ($40.77) each, implying a market capitalization of about $4.8 bn.

STC, which is selling 20% of the company, has also said the IPO order book was 130 times oversubscribed during the book-building process.

HSBC Saudi Arabia, Morgan Stanley Saudi Arabiaand SNB Capital Company acted as joint financial advisers.

ACWA Power which will be 44% owned by Saudi Arabia’s sovereign wealth fund (PIF) after the IPO, said it’ll sell shares at 56 riyals ($14.93) apiece after the institutional part of the offering ended. It will raise $1.2 bn for ACWA and value the company at $10.9 bn.

ACWA is a key part of Saudi’s plan to transform its energy sector, boosting renewable power generation to reduce emissions and could be more profitability exported. Over the next 5 years, the company will double the amount of power it generates, mostly from renewable sources, Chief Executive Officer Paddy Padmanathan told Bloomberg earlier in September.

ADNOC IPO

Abu Dhabi National Oil Company (ADNOC) raised more than $1.1 bn from an 11% sale of shares in its drilling unit through an IPO which it said was oversubscribed.

Recently, ADNOC raised the offering from 7.5%, selling 1.76 billion shares of ADNOC Drilling, at an offer price of 2.3 dirhams ($.63) per ordinary share.

The IPO registered “significant demand” from UAE retail and qualified institutional investors, the company said in a recent statement. Total gross demand for the offering amounted to over $34 bn.

ADNOC Drilling is one of the largest drilling companies in the Middle East, operating 107 onshore, offshore and island rigs, of which 11 are rented.  

The size of the first tranche reserved for UAE retail investors was set at 10%.

A second tranche reserved for local, regional, and international qualified institutional investors was set at 86% and the size of the third tranche reserved for employees of ADNOC Group and UAE national retirees was set at 4%, the company said.

ADNOC will continue to maintain its majority 84% stake in ADNOC Drilling. US energy services company Baker Hughes, a strategic partner since October 2018, will retain its 5% interest. US contract oil and gas driller Helmerich & Payne will hold 1% through its IPO cornerstone investment announced on September 8, 2021.

This is the second IPO for the ADNOC which listed 10% of the company’s distribution business in 2017. ADNOC doubled the amount of its free-floating stock to 20% in September last year, following a block placement of 1.25 billion shares, valued at $1bn, with institutional investors.