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Saudi Aramco may avoid direct IPO sales to US funds on legal risk

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Thursday 12, September 2019 BY Kuda Muzoriwa

The state-owned oil giant selected firms including Bank of America, Citigroup as well as Credit Suisse Group, Goldman Sachs Group, JPMorgan Chase & Co and Morgan Stanley for top roles on the transaction.

Saudi Aramco is considering a structure for its initial public offering (IPO) that would prevent it from marketing the deal directly to fund managers in the US, reported Bloomberg.

The oil producer wants to avoid litigation risks that could result from selling the deal to US-based institutions, the firm is consulting with its bankers on the pros and cons of different deal structures, and it hasn’t made any final decision.

Many foreign IPOs rely on the ‘Rule 144A’ structure, which allows overseas companies to market offerings to institutional investors in the US The method being considered by Saudi Aramco is a so-called ‘Regulation S only’ transaction, which would limit it to selling stock to foreign buyers and overseas units of US fund houses.

While that means that Saudi Aramco could still market the IPO to big investors like BlackRock and Fidelity Investments via their foreign affiliates, US institutions without overseas subsidiaries would be left out, that would limit the pool of potential buyers for an offering that is slated to be one of the biggest equity offerings in history.

Saudi Crown Prince Mohammed Bin Salman, the architect of the IPO plan, has previously said he expects the oil firm to be valued at over $2 trillion.

Given those lofty expectations, Saudi Aramco will need all the help it can get to sell the deal.

The firm is said to be choosing as many as nine joint global coordinators including some Middle Eastern banks. Saudi officials have also held discussions with some of the Kingdom’s wealthiest families about becoming anchor investors in the offering.

Saudi Aramco is planning to sell shares on the Tadawul as soon as November and plans to hold a kick-off meeting with underwriters as soon as this week.

Other Saudi companies have started taking steps to rope in US investors after the country began allowing foreign fund managers direct access to one of the world’s most restricted major stock exchanges. Earlier this year, mall operator Arabian Centres Company conducted the first IPO by a Saudi company under Rule 144A, raising $659 million.


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