December 18, 2017 / 12:50 PM / in 8 months

Saudi Aramco hires Citi to lead $2 billion UK-backed loan: sources

LONDON/DUBAI (Reuters) - Saudi Aramco [IPO-ARMO.SE] has appointed U.S. investment bank Citi to lead a $2 billion financing backed by Britain, sources familiar with the deal said.

Logo of Saudi Aramco is seen at the 20th Middle East Oil & Gas Show and Conference (MOES 2017) in Manama, Bahrain, March 7, 2017. REUTERS/Hamad I Mohammed/File Photo

The loan mandate will not be particularly lucrative, the sources said, but is seen by some banks as a way of getting closer to securing work on Aramco’s planned initial public share offer, which may value the company at $2 trillion - a sum some prospective investors have said appears unrealistically high.

“Banks look at these kinds of operations for relationship purposes,” said a source at a European export credit agency in the Middle East. “This kind of loan is a bit of a test that Aramco makes on the market and given the name, there’s high competition among banks,” he added.

The loan financing, announced in November, is guaranteed by UK Export Finance (UKEF), the British export credit agency, and will enable Saudi Aramco to buy British goods and services more easily.

“UKEF is engaged in finalizing the operational arrangements regarding a significant finance facility with Saudi Aramco. UKEF’s support will take the form of a $2 billion guarantee on bank lending,” said a UK government spokesperson in an emailed response to a request for comment, adding that Aramco would select the banks involved in the transaction.

Aramco and Citi declined to comment.

Citi is keen to win a much-coveted role in the IPO, expected to raise $100 billion as soon as late 2018 and a cornerstone policy in Crown Prince Mohammed bin Salman’s plan to diversify the Saudi economy away from its over-dependency on oil.

One source said proposals were due on Wednesday for the IPO roles but banks without an established lending role did not expect to be successful.

“We can’t get on their loans so we don’t expect to get a mandate. It’s really frustrating,” said one banker who did not want to be identified because of the sensitivity of the issue.

Earlier this year Aramco formally appointed JPMorgan Chase & Co, Morgan Stanley and HSBC to advise it on the listing alongside independent advisors Moelis and Evercore.

Citi also recently received an investment banking license for Saudi Arabia after more than a decade out of the kingdom.

Reporting by Dasha Afanasieva in London and Davide Barbuscia in Dubai, with additional reporting by Reem Shamseddine in Khobar; Editing by Greg Mahlich

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