LONDON, (Reuters Breakingviews) - That strange sobbing noise is the sound of lost investment banking fees. UBS , Bank of America Merrill Lynch and Barclays have all missed the cut to act as global coordinators on the initial public offering of Saudi Aramco Reuters reported on Jan. 16. There will be garment rending, but it need only be fleeting.

Aramco’s IPO will bring both glory and fees. Saudi officials think the company is worth $2 trillion. Even if it were appraised at half that – as a Breakingviews calculator suggests it should be – the absolute levels of banker fees would be sizeable. Moreover, a successful initial placing of 5 percent of the stock at a valuation of up to $100 billion would be the springboard for over a decade of other corporate finance work as part of Crown Prince Mohammed bin Salman’s Vision 2030 modernisation programme.

The loss probably stings most for BAML. Unlike Barclays and UBS, the U.S. bank was joint-top of the Middle East equity and equity-related league tables by deal value in 2017, according to Thomson Reuters data. It was also placed fifth in terms of equity capital market deals globally over the same period, above its two European rivals. It failed to qualify for one of the top roles in the region’s blue-riband event because it lacked a sufficiently entrenched lending relationship with Aramco.

Seen differently, all three have been spared a sizeable burden. Those who do get the nod as global coordinators will have to base a large team in Saudi Arabia. The fees could be just 0.2 percent of money raised, Reuters reported on Jan. 17 – still a decent $200 million, but widely shared. Finally, the lead bankers will have to manage unrealistic expectations that the company is really worth $2 trillion – while also ensuring new investors feel they’ve got a good deal.

The wider cause for concern is Saudi itself. The crown prince’s vision is heady, but the recent detention of royals at the Ritz-Carlton in Riyadh is a nervous moment for those hoping Saudi will become more like Western democracies. If he comes unstuck, or Aramco’s IPO gets shelved, the expected pipeline of projects may not look as rosy. Banks left on the sidelines because they didn’t prostrate their balance sheets would then look rather more clever.

CONTEXT NEWS

- Saudi Aramco has not invited UBS and Bank of America Merrill Lynch to pitch for senior advisory roles in its stock market listing because they have not lent money to the state oil giant in recent years, Reuters reported on Jan. 16 citing five finance sources.

- Barclays has also not been invited to pitch, according to two separate banking sources who did not say why the British bank had been excluded.

- Saudi officials have claimed that Aramco, the kingdom’s state oil producer, is worth $2 trillion.

(Editing by John Foley and Bob Cervi)

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