How HSBC landed the top role on the Saudi Aramco IPO

Concerted push by the UK-based lender made it one of only three banks to win oversight of investor orders on the record listing

A year ago, HSBC was still reeling after a group of rebels in its investment bank slammed top management for a series of perceived failings, including potentially missing out on a prime position on the world’s largest initial public offering.

But the doubters were wrong. Last week, HSBC became the only global bank with a lead role on the massive, and long-awaited, Saudi Aramco listing.

How did HSBC pull it off?

The UK-based lender is one of only three banks with oversight of investor orders on the record listing, which is expected to raise $25.6bn. The other two are local Saudi banks.

It is a win that comes after a concerted push by HSBC in Saudi, involving years of commitment to the local market and some serious schmoozing — even as other global businesses backed away from the often-controversial kingdom.

“This whole IPO process has been more about the personal relationships of the bankers with the Saudi government, than the brand name of the bank,” said one senior investment banker close to the deal.

It is notable that Samir Assaf, HSBC’s long-serving head of global banking and markets, was one of just a handful of top bankers to attend a high-profile investment conference in Saudi last year when other finance executives distanced themselves from the kingdom in the wake of the murder of journalist Jamal Khashoggi.

On Aramco specifically, Assaf’s connections in the region have been valuable, but HSBC has also drafted in Matthew Wallace, who was promoted to co-head of corporate finance in April, and Christopher Laing, who heads equity capital markets for central and eastern Europe, the Middle East and Africa to work on the transaction.

The bank benefits from deep ties to the Saudi government. HSBC’s former chief executive for the Middle East and north Africa, Mohammed Al-Tuwaijri, is now Saudi’s minister of economy and planning. Fahad Al-Saif, a former HSBC executive, is now head of the kingdom’s debt-planning office, which is responsible for sovereign bond sales.

HSBC’s much broader presence in Saudi compared with other global banks was also likely a factor, rivals say. The bank has been operating in Saudi for more than seven decades. It has a network of local tie-ups with Saudi businesses and has a much larger presence on the ground than its rivals.

In all, HSBC has more than 4,000 employees in the country. That is a contrast with its Wall Street rivals — JP Morgan has about 80 staff in Saudi, and Goldman Sachs about 20.

Some rivals note that HSBC’s lead role on the Aramco IPO is a reflection of both the bank’s huge presence in Saudi and the oil company’s reduced ambitions for its listing. Aramco’s value has been revised down from Riyadh’s original target of $2tn to a maximum of $1.7tn, and it will offer 1.5% of the company, largely to domestic investors.

“This is essentially a local listing currently,” said one investment banker at a US company. “We will still get paid.”

Still, HSBC, which declined to comment for this story, has emerged as the top investment bank in Saudi this year, with $31m in revenues, according to data provider Dealogic — more than double the fees it generated last year. Aramco will bolster these revenues further.

The fee pool on the Aramco deal is just 0.35% of the value of the transaction — far lower than the 5%-7% typically paid to advisers in the US. But because of the size of the IPO in absolute terms, banks involved will still be taking a cut of the mammoth $90m in fees available.

The real prize may be further down the line. Aramco is the jewel in the crown of what is expected to be a rush of fees in the region as Crown Prince Mohammed bin Salman overhauls the oil-dependent economy. Wall Street banks including Goldman Sachs, Citigroup and JPMorgan have flocked to the kingdom over the past three years in anticipation of a flurry of deals that has so far failed to materialise.

In late-summer 2018, HSBC’s investment bank was rocked by internal turmoil when a group of senior bankers wrote an incendiary memo, criticising the division’s leaders. The memo complained about a failure to retain talent and to win roles on marquee deals. Aramco was cited as an example. “We were promised a lead role on the IPO but we are now downgraded weekly as other banks come in,” they wrote.

This year, revenues in its global banking and markets division have slumped, while pre-tax profits fell by 22% year on year during the first nine months of 2019 to around $4bn.

The Aramco deal marks an important win for the investment bank as well as a final sign-off for Assaf, who is set to become a non-executive director at HSBC after an eight-year stint running its investment bank. His departure is part of a wider shake-up of senior management at the bank this year, and comes ahead of what is expected to be a painful period of cost-cutting for its investment bank under interim chief executive Noel Quinn.

HSBC is making yet another push to reinvigorate the division, this time under former JPMorgan banker Greg Guyett, who has set about refocusing on key markets including the UK, Asia and the Middle East. Guyett wants HSBC on more big-ticket deals and has been replacing underperforming investment bankers with new prolific dealmakers in a bid to bolster revenues.

Source: Financial News

Can’t stop reading? Read more