April 25, 2017    6 minute read

A Tale of Princes and Bankers: How the World’s Biggest-ever IPO Came to Be

Going Public    April 25, 2017    6 minute read

A Tale of Princes and Bankers: How the World’s Biggest-ever IPO Came to Be

Saudi Aramco’s initial public offering is expected to be the largest IPO in the world to date. But what is Aramco’s importance to the Saudi economy? And what is the role of Moelis & Company in organising the public share offering? It is also worth asking how the Aramco IPO could impact the global markets.

The Saudi Economy and Vision 2030

Saudi Arabia is a leading producer of oil worldwide with their Dhahran-based oil behemoth, Saudi Aramco. In this economy, one cannot overstate the importance of Aramco on the Tadawul, the Riyadh-based stock exchange. For the Deputy Crown Prince of Saudi Arabia, Mohammad Bin Salman, it is imperative to transition this economy to be less oil dependent. 

Salman has outlined his aspirations for the economy and other societal issues in an outlook named “Vision 2030”. The primary focus of this article is the outlook’s economic goal of becoming a global player by the year 2030. One step Bin-Salman has taken is the creation of the Saudi sovereign oil fund run by the Japanese financial firm SoftBank. 

This London-based fund is placing diversified investments in several sectors. One of their focuses is on high-yield tech companies, both established ones and promising startups worldwide. The Saudi sovereign oil fund is funded with the oil money created by Aramco. Additionally, it is the largest of its kind in the world, surpassing the Norwegian sovereign oil fund in terms of volume with $2trn in assets. 

In the eyes of Michael Bolliger, the Zurich-based head of emerging market asset allocation for UBS wealth management, Vision 2030 will open up the market for foreign investments into Saudi Arabia. “As part of a broader privatization program of state-owned companies, it reinforces the message that the kingdom’s strategy is to develop a domestic capital market and gradually open it up to international investors,” he said. Both the Saudi government and the Deputy Crown Prince overseeing this are equally invested in Vision 2030.


One of the aspirations in Vision 2030 is to have Saudi Arabia’s own wonder-child, Aramco, go public through an IPO. When Aramco decided to sell off a 5% buy-in stake, they went to the top of the financial elite. 

Many a firm arrived in Dhahran, Aramco’s headquarters, in an attempt to win the ticket to the lucrative Aramco IPO. In the end, Aramco CEO Amin H Nasser and Mohammad Bin-Salman opted for Kenneth D. Moelis, nicknamed ‘Ken of Arabia’, and his firm,  Moelis & Co. They were admired due to their agility and navigation in difficult markets . 

Who is this firm, and how long have they been playing ball with the big guys in the investment banking sphere? Moelis founded his boutique investment banking firm in 2007, in spite of the financial crisis and economic uncertainty at the time. In an interview with the Financial Times, Moelis explained the difficulty of establishing his company to financial times this way:

“Do you know how many people told me we were going to go bankrupt? Everyone. When I was expanding in the crisis the whole street thought I was crazy” Ken Moelis, CEO of Moelis & Company

His revenues hit $126.4m in the first quarter of 2016, a 27% increase on the first quarter of 2015, and a client pool gain from 113 to 126 in the same time period. Moelis advocates his unconventional yet, as he sees it, superior model: “Having a single pool to reward bankers,” he claims, “fosters a collegial spirit that allows them to work together no matter the size of the deal”. 

On the process of paying and motivating his employees, Ken explains the ‘Moelis way’: “We made a huge decision to not pay direct commissions to bankers when we started. There are a lot of boutiques out there that hire you by saying: ‘I’ll give you 35 or 40% of whatever you bring in.’ That’s not how we work”.

Perhaps this unorthodox attitude to the advisory game is part of their success. It is easy to see the rewards for Moelis from the recent hire by Aramco and the record they can bring in for the world’s largest IPO. Moelis & Co will aid Aramco is deciding which market to list in, from London and New York, to other options such as Hong Kong or TorontoMoelis will look at how the regulatory, political and economic environment can impact Aramco’s listing.

Impact on Global Markets

As of now, Aramco pays a 85% tax rate to the Saudi government and a 20% royalty on top of this. To raise enough capital, the cooperation between Aramco and the Saudi government is necessary in terms of fiscal policy and tax regulations. With the likelihood of Aramco’s being the world’s largest-ever, speculators have one primary interest: what are they actually worth? 

According to Farek Tadlallah, CEO of Nomura Asset Management Middle-East Division, Aramco is worth around $2trn. This number also corresponds with statements made by Al-Salman and Nasser. Tadlallah said this about the process of getting to his number: “this number is based on the fact that Aramco and the Kingdom of Saudi Arabia has claims to about 260 billion barrels of oil reserves. This multiplied by 10 dollars a barrel, you will get $2.6 trillion.”

Later in his interview, Tadlallah addresses how both “corporate governance, the Saudi tax structure and the way Aramco will pay dividends to the government” will impact the Aramco IPO. For the Aramco IPO to be successful, the Riyadh-based government is doing their part in terms of taxation allowing Aramco to release substantial amount of free capital for the IPO. 

Mohammad Al Hajj, a Dubai-based equity strategist for Middle East and North Africa at EFG-Hermes Holding, describes the magnitude of the Aramco IPO:  “assuming Aramco will open up a 5% stake, Aramco alone would account for about 2.4 percent of the gauge. That would be enough to propel it into the top five companies by weighting alongside Samsung Electronics Co. and Alibaba Group Holding Ltd” says this Dubai-based strategist.  

Crucial Crude

Bloomberg’s outlook for the global market argues that the key to Aramco’s IPO success will be the value of crude. Despite the world shifting to cleaner source of fuels, Bloomberg believes that “oil is expected to continue providing about a third of world energy for the next two decades”. Based on this, one can see how Aramco will net the Kingdom substantial amounts when the firm goes public.

The relationship between Ken Moelis and Crown Prince Mohammad Bin Salman’s government will also be imperative for the success of the Aramco IPO. The reward, however, is gilded for Ken of Arabia: the record for the world’s largest IPO and an avid Wall Street reputation. As for Bin-Salman, Aramco and the Saudi government, this IPO and its success will be a great start heading towards the set goals for a more global and diversified economy by 2030.

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