Tuesday 14 January 2020 4:58 pm

Banks seek additional fees from Aramco after record float

Banking giants who were involved with Saudi Aramco’s record-breaking initial public offering (IPO) last month are lobbying for an “incentive fee” as they try to boost low earnings from the deal.

Sources close to the matter told Reuters that the banks were in discussions with the state-owned oil firm over a clause in the contract which allows the oil giant to pay banks extra in the event of a successful listing.

Due to Aramco’s decision to pull the listing from international bourses meant that most of the banks involved in selling the shares will earn less than $5m (£3.8m) each.

In the run-up to the float, investor events in Europe and the US were cancelled due to a perceived lack of demand, with marketing kept to the region.

The development comes after Aramco announced over the weekend that it had exercised a “greenshoe option” to issue an additional 450m shares, taking the size of its IPO to $29.4bn.

Sources did not specify how much more the banks could be paid, suggesting it would vary depending on the institution.

Incentive fees are increasingly common for IPOs in Europe and the US, as they keep the base fees low for listings and make banks work harder.

Aramco paid a mere 25 basis points as a base fee on its listing, earning its banks a collective $60m. Alibaba’s 2015 New York IPO, the previous record holder, earned banks $300m.

Aramco declined to comment on the news.

The oil giant picked nine banks as joint global coordinators for the deal in September, including JPMorgan, Morgan Stanley, Bank of America Merrill Lynch, Citigroup, Credit Suisse, Goldman Sachs and HSBC, as well as local banks NCB Capital and Samba Financial Group.

The banks either declined to comment, or did not respond to a request to comment when contacted by City A.M.

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