Khashoggi disappearance puts dealmakers in a bind

During the past three years, there have been few greater opportunities in global finance than a chance to work with Mohammed bin Salman, the crown prince of Saudi Arabia, and his kingdom’s $300bn state investment fund.

As the 33-year-old heir apparent sought to reduce his country’s dependence on oil, the Saudis cut a $45bn cheque to help SoftBank create the world’s largest technology investment fund and dazzled dealmakers with the promise, as yet unrealised, of the biggest stock market listing ever: a $100bn public offering for Saudi Aramco.

As recently as last month, more than a dozen global banks teamed up to provide $11bn in loans to Saudi Arabia’s Public Investment Fund at terms normally reserved for the country itself in hopes of positioning themselves for future opportunities.

Now, the disappearance of Saudi journalist Jamal Khashoggi has turned the spirited pursuit of trophy deals in the kingdom into an exercise in crisis management for some of the world’s most influential financiers.

Among those caught in the crosshairs are executives who have been most successful in courting Prince Mohammed — including such chief executives as Jamie Dimon of JPMorgan Chase; Larry Fink of BlackRock, the world’s largest fund manager; and Stephen Schwarzman of Blackstone, the world’s largest private equity firm. 

All three men joined the exodus of corporate titans, media companies and sponsors that withdrew from Saudi Arabia’s flagship business conference set for next week in Riyadh, which was meant to present the kingdom’s modernising face.

The situation contrasts with last year’s Future Investment Initiative conference, where the allure of Prince Mohammed was on full display as rainmakers from around the world clamoured for a chance to schmooze with him in a crowded hotel ballroom.

Bankers have been keen to tap into the PIF as Saudi Arabia seeks to increase its assets under management to $600bn by 2020. Saudi deals have generated more than $1bn in fees for global banks on everything from capital raising to investing in international companies since 2010, according to Dealogic data. 

The PIF, which is led by one of the prince’s closest lieutenants, Yasir al-Rumayyan, has spearheaded these efforts and has been organising next week’s event. 

Mr Fink has been among most frequent contacts of Mr al-Rumayyan, according to people with knowledge of their relationship, providing regular briefings on the state of the global economy and markets. 

Bankers at JPMorgan, which has a decades-long relationship with the kingdom, were among the first to be approached about an initial public offering of Saudi Aramco and have played a leading role in trying to arrange its listing. 

Mr Dimon has taken a leading role in the relationship with Saudi Arabia, making time to visit or call the crown prince when possible, according to JPMorgan bankers and others informed about their dealings. Other banks that were set to play a prominent role on the listing included Morgan Stanley and HSBC. 

However, the offering of Saudi Aramco, which sought to raise about $100bn to fund the PIF’s investments, was postponed indefinitely, prompting Riyadh to seek alternative means to bolster the fund’s coffers. It has instructed Saudi Aramco to pursue a $70bn takeover of PIF’s 70 per cent stake in Sabic, the Saudi state chemicals group.

JPMorgan has remained at the heart of the advisory work around the deal, said people close to the talks. 

Chief executives planning to attend the FII conference, dubbed “Davos in the Desert”, included Tidjane Thiam of Credit Suisse, John Flint of HSBC and Ken Moelis of his eponymous New York investment bank.

Moelis & Co was the lead independent adviser on the planned public offering of Saudi Aramco. To retain Saudi business, Mr Moelis is a frequent traveller to the region.

Mr Flint’s HSBC has collected more than $130m in investment banking fees from Saudi deals since 2010, more than any other bank, according to Dealogic. 

Less senior executives from JPMorgan, Goldman Sachs, Citigroup, Morgan Stanley are expected to attend the FII conference, according to people briefed on the matter.

Dina Powell, a former Trump administration official who is currently leading Goldman’s relationship with the Saudis, was planning to attend with a colleague, said a person familiar with the situation.

Although there is still a chance they would pull out, the person familiar stressed that attending these kind of conferences is a core responsibility for the executives because they both cover clients in the region. 

Additional reporting by Laura Noonan in New York and Simeon Kerr in Dubai