Moelis chosen as sole independent adviser on Saudi Aramco IPO

Moelis & Co has been chosen as the sole independent adviser for the planned initial public offering of Saudi Aramco, according to three people familiar with the process, scoring the New York boutique investment bank the biggest equity advisory mandate to date.

Winning the hotly contested mandate represents a coup for the independent firm, which was founded by veteran dealmaker Ken Moelis in the midst of the financial crisis in 2007. Other banks are still in the race to underwrite the offering.

Saudi officials hope to turn the state-owned oil group into the world’s most valuable publicly traded company, which they believe could carry a valuation of about $2tn.

Those close to the IPO planning have said the sale of a 5 per cent stake — potentially worth about $100bn — should happen next year, although the number of shares sold could increase, and the timing could slip.

The IPO proposal is the centrepiece of an ambitious strategy by the hard-charging deputy crown prince Mohammed bin Salman to overhaul the country’s economy, using a broad-based privatisation programme to boost employment and diversify the kingdom away from oil.

Riyadh hopes to use the IPO proceeds for investments in non-oil industries in order to wean the country off its most precious resource. Banks, advisory firms and consultancies have scrambled to secure work on the IPO since Saudi officials announced their intention a year ago.

JPMorgan, which has been Saudi Aramco’s commercial banker for years, and Michael Klein, a former star Citigroup banker, are working with the Saudi authorities on a broad range of matters including the IPO. Other banks have provided informal advice to the company on the prospective IPO and have made several visits to Saudi Arabia in an attempt to get a slice of the action.

Moelis declined to comment, and Saudi Aramco did not immediately respond to requests for comment

It would be no ordinary listing for advisory firms and banks overseeing the selling of shares in the group that supplies one in every nine barrels of oil produced in the world. The offering would be complicated largely due to how entwined Saudi Aramco, the kingdom’s biggest revenue generator, is with the state. Besides managing vast oil reserves, it acts on behalf of the government constructing schools, hospitals and sports stadiums.

In preparation for the IPO, Saudi Aramco has sought advice on matters ranging from which exchange to list on, regulatory exposure, disclosure rules and dividend policy.

The world’s largest stock exchanges are also gearing up to try to gain pole position as a listing venue. Advisers selected by Saudi Aramco’s top ranks have to also be approved by the highest authorities in the kingdom.

Exchanges from New York to London, Tokyo and Hong Kong are among those being considered by the Saudis as possible places for a listing alongside the Tadawul in Riyadh.

New York was initially seen as contentious given US legislation that allows families of victims of the 9/11 attacks to sue Saudi Arabia. But the selection of a New York firm may suggest a US listing could be back in favour. Saudi officials have said a listing could take place across multiple exchanges, giving hope to smaller exchanges in Singapore and Canada.

Landing an IPO of this magnitude would be a major catch for any of the exchanges, with jockeying expected to intensify in the coming months.

For Mr Moelis and his eponymous advisory group, landing the Saudi Aramco IPO vindicates a strategy that has focused on dealmaking the old-fashioned way with a global footprint.

Since Moelis secured its first big advisory roles in 2007, including working on Hilton’s $26bn sale to Blackstone, the veteran banker has successfully expanded its operations in growth markets such as Germany, India and the United Arab Emirates.

While other boutique advisers remained anchored in New York or Silicon Valley, Moelis put a premium on hiring experienced bankers in regions where it expected its mergers and acquisition, restructuring and IPO business to grow at a robust pace.

In the Middle East, Moelis built a sizeable team of advisers who have worked closely with large companies including Dubai World and Abraaj, a powerful private equity fund in the United Arab Emirates. The Middle East team works closely with specialists in London, New York and Houston, where Moelis has recently made several big hires.

In 2014 Moelis recruited Eric Cantor, the former Republican majority leader in the US House of Representatives, in what many on Wall Street saw as a shrewd move to add to its clout in Washington and internationally.

Mr Moelis, a Republican who was among the first on Wall Street to say that Donald Trump’s presidential campaign could succeed, said at the time that hiring Mr Cantor would expand its ability to help clients better navigate complex situations around the world.

In an interview with the Financial Times last year, Mr Moelis said that the key to building the company was to maintain a partnership mentality that has ceased to exist in all but a few large investment banks. He claimed this mentality has lived on since the company, which now employs more than 450 bankers, went public on the New York Stock Exchange in 2014.

“We made a huge decision to not pay direct commissions to bankers when we started and we’ve stuck to that [post-IPO],” Mr Moelis told the FT. “There are a lot of boutiques out there that hire you by saying: ‘I’ll give you 35 or 40 per cent of whatever you bring in.’ That’s not how we work.”