• 5 minutes Drone attacks cause fire at two Saudi Aramco facilities, blaze now under control
  • 8 minutes China Faces Economic Collapse
  • 12 minutes Oil Production Growth In U.S. Grinds To A Halt
  • 14 minutes Iran in the world market
  • 17 minutes Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 3 hours USA Wants Iran War -- Shooty Shooty More
  • 3 hours Experts review drone damage . Say Saudis need to do a lot of explaining.
  • 8 hours Collateral Damage: Saudi Disruption Leaves Canada's Biggest Refinery Vulnerable
  • 7 hours Yawn... Parliament Poised to Force Brexit Delay Until Jan. 31
  • 1 hour Saudis Confirm a Cruise Missile from Iranian Origin
  • 4 hours The Spy Money: U.S. Wants To Seize All Money Edward Snowden Makes From New Book
  • 38 mins Aramco Production
  • 10 hours Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 49 mins Trump Will Win In 2020 And Beyond..?
  • 20 hours USA : Attack came from 'Iranian soil'. Pompeo to release 'evidence'.
  • 2 hours The Belt & Road Initiative: A Wolf in Sheep's Clothing?
Alt Text

The Biggest Winner In The Saudi Oil Supply Crisis

The weekend attacks on vital…

Alt Text

A Fracking Ban Will Never Happen

Democratic candidates are ramping up…

Alt Text

Big Oil Is Down, But Not Out

Activist divestment and climate change…

Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

More Info

Premium Content

Banking Giants Miss Out On Oil’s Biggest IPO

The world’s biggest oil company is preparing for its IPO and it plans on relying on one of the world’s smaller investment banking firms. Saudi Aramco has tapped Moelis & Co., a firm started by Ken Moelis less than a decade ago as an advisor for the IPO.

Moelis is certainly not the world’s smallest investment bank – it’s not even all that small – the firm is publicly traded. But compared to giants like Goldman Sachs, Bank of America, and Morgan Stanley, Moelis is tiny. Despite that, Moelis & Co outmaneuvered its larger rivals to win the biggest equity advisory mandate in history – not just in the history of the firm, but in all of history in all the world.

Moelis & Co, which trades under ticker symbol MC, has a market capitalization of slightly under $1B. And that is after the stock has seen a massive run-up in price over the last few months. And this $1B firm will be advising Saudi Aramco, which should carry a valuation of roughly $2 trillion once it goes public.

MC’s accomplishment is enormous, but it also highlights how much work the firm has ahead of it. Much like the proverbial dog that catches the car, now MC has to pull off what will not be an easy assignment. If it does so with aplomb, business at the investment bank could boom. If things do not go well, MC could be relegated to the third tier of boutique investment banks for years to come. To say that this is a high-pressure assignment is an understatement.

Related: OPEC Reports First Output Deal Results: 890,000 Bpd Cut

The Saudi Aramco IPO is going to be tricky for a few reasons. First, the oil company is enormous. With a valuation of $2 trillion, Saudi Aramco is worth roughly one-tenth of the value of all 500 in the S&P 500. In other words, this oil company is about 50 times the size of the average large American company. For that reason, just finding enough investors to fulfill demand will be difficult.

Moelis & Co. won’t be responsible for getting investors to buy the Saudi Aramco deal – other banks will do that as part of a broad syndicate once the IPO moves closer – but if MC does not structure the deal properly and lay the right groundwork, the offering could become a debacle.

At this point, deal insiders say that the plan is to sell just 5 percent of Saudi Aramco sometime during 2017. That might not sound like much, but at a $2 trillion valuation, even 5 percent is 100 billion dollars of securities. That money has to come from somewhere, and one year is not that long a time frame to structure the deal. Related: Mafia, Guns And Clans: The Big Libyan Oil Heist

The IPO of Saudi Aramco is the most visible part of deputy crown prince Mohammad bin Salman’s strategy to overhaul the Saudi economy and privatize the state-centric oil system which is bloated and inefficient in many respects. Moreover, Riyadh is planning to use the IPO proceeds – roughly $3,000 for every person in the country – to start diversifying the Saudi economy as a whole. That plan hinges on a successful IPO for Aramco.

Moelis & Co is not the only bank working on the deal or with the Saudi government. JPMorgan for instance is also involved. But Moelis & Co. will play a primary role in bringing public the firm that produces one out of every nine barrels of oil. So far, in preparation for the IPO, Aramco has reportedly sought advice on among other issues, what exchange to list on, what it’s regulatory exposure will be, what type of disclosure and filings will be needed for the notoriously secretive company, and what kind of dividend policy it should adopt.

It’s going to be a busy 2017 for Ken Moelis and his team.

By Michael McDonald of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play