Citigroup Accelerates Saudi Return Plans With Megabond Mandate

  • U.S. bank left market 12 years ago after selling Samba stake
  • Firm said to set up task force to assess Saudi opportunities

More than a decade after quitting Saudi Arabia, Citigroup Inc. is winning more high-profile deals in the kingdom and quietly plans to compete for more.

The New York-based bank has set up a company-wide task force to target opportunities in Saudi Arabia and holds weekly calls to coordinate the push, people familiar with the firm’s strategy said, asking not to be identified because the plan is private. Those leading the charge include Alberto Verme, banking chairman for Europe, the Middle East and Africa, and regional Chief Executive Officer Atiq Ur Rehman, according to three of the people.

The bank’s efforts may be paying off after it won a role as lead adviser on Saudi Arabia’s first international bond sale, which could raise at least $10 billion as soon as next month. Citigroup is keen to profit from a potential fee bonanza as the nation undergoes an unprecedented economic shakeup, including plans to create the world’s largest sovereign wealth fund and sell shares of crude giant Saudi Arabia Oil Co. in an initial public offering.

“Citi’s exit from Saudi put some strain on their activities there, but they have worked hard to get back into the kingdom," said Emad Mostaque, a London-based strategist at emerging-markets consultancy Ecstrat Ltd.

‘Fantastic Wallet’

Verme is a 59-year-old Peruvian native who worked at companies in Madrid and London before joining Salomon Brothers in 1994, while Ur Rehman is a Pakistani with more than 30-years experience at Citi who has lead the bank’s efforts in the Middle East since 2010. He was previously co-head of capital markets origination for Europe, the Middle East and Africa.

Implementing Saudi Arabia’s plans to restructure the economy and privatize assets -- known as Vision 2030 -- “could translate into a fantastic wallet for the investment banks,” Omar Iqtidar, Citigroup’s investment banking head in the Middle East, said in a May interview in Dubai.

License Restrictions

The lender lost a key banking license when it sold its stake in Samba Financial Group in 2004. Without a license from the Capital Markets Authority, international banks face restrictions on pitching for deals on the ground and working on deals that are signed in Saudi Arabia or takeovers where the target company is based in the kingdom. 

Despite those hurdles, Citigroup beat rivals in June to be hired as one of three global coordinators for the international bond sale along with JPMorgan Chase & Co. and HSBC Holdings Inc., people with knowledge of the matter said at the time. It was also among 15 banks that helped raise a $10 billion loan in April, a deal where Saudi Arabia held out the prospect of a role in the subsequent international bond sale to participants.

"A key part of the new governance regime in Saudi Arabia is looking for results, rather than dwelling on the past," Mostaque said. “They need their financing to be successful and to attract as much money as possible into the kingdom.”

Majority Stakes

The U.S. bank was able to pitch for the sovereign bond as the government is excluded from CMA rules. Citigroup can also pitch for international bonds and advisory work for Saudi clients from Dubai or their other global offices.

A Citigroup spokeswoman in London declined to comment, as did the Saudi Capital Markets Authority.

The bank opened its Saudi operations in 1955 in the Red Sea port of Jeddah. In the 1970s, the government forced foreign banks to sell majority stakes in their local operations to Saudi nationals, but a 2003 capital-market law opened the door for foreign banks to apply for licenses.

In 2004, Citigroup was focusing on countries where it could control a majority stake. That strategy led to the sale of its 20 percent stake in Samba, formerly known as Saudi American Bank, to the state’s Public Investment Fund for $760 million. Through a management contract, Citigroup ran about 62 Saudi American branches at the time. Samba is currently the third-largest bank by assets and market capitalization in Saudi Arabia, according to data compiled by Bloomberg.

‘Mistake’

The exit was called a “mistake” in 2007 by Mohammed al-Shroogi, the bank’s then-managing director for the Middle East. In the intervening years, Citigroup executives have continued to visit the kingdom and expressed interest in returning to Saudi Arabia.

The bank applied unsuccessfully for a license to return to the country in 2006. It tried again in 2010 and failed, despite lobbying by longtime shareholder Prince Alwaleed Bin Talal Al Saud. The billionaire said in an interview that year that he was helping the bank set up in Saudi Arabia. Citigroup CEO Michael Corbat, Ur Rehman and Verme were among executives to visit Alwaleed in 2013, according to a statement at the time.

The grandson of King Abdul-Aziz Alsaud, founder and first ruler of Saudi Arabia, Alwaleed doesn’t currently hold an official government position within the Saudi royal family, but is considered one of the country’s most prominent business figures. He has been a strong supporter of Citigroup since he first invested in the bank in 1991, and publicly praised former CEO Vikram Pandit for his handling of the global financial crisis.

Calls to Alwaleed’s offices in Riyadh weren’t immediately returned.

Without the key CMA license, Citigroup has missed out on Saudi Arabia’s IPO market -- the region’s busiest with 83 offerings priced since 2006, compared with 73 in the rest of the Gulf Cooperation Council region, which includes the United Arab Emirates and Qatar, according to data compiled by Bloomberg.

Citigroup ranked 14th among local and international banks in investment banking fees earned in Saudi Arabia over the past five years, reaping $16 million to achieve a 2 percent market share, according to New York-based research firm Freeman & Co. That trailed its much stronger performance in the rest of the Gulf Cooperation Council nations, ranking third with a 4 percent market share and $119 million earned.

By contrast, bankers who worked for Citigroup before 2004 are well-represented among advisers on the current revamp. Michael Klein’s M. Klein & Co. is providing strategic advice to the government and advising on the IPO of Aramco, people with knowledge of the matter said in April. Verus Partners Ltd., a London-based advisory boutique co-founded by former Citigroup bankers Mark Aplin and Andrew Elliott, helped Saudi Arabia secure its first loan in 15 years in April.

Financing Deals

Even without bankers on the ground, Citigroup has provided more finance to borrowers in the kingdom than rivals JPMorgan Chase & Co. and Deutsche Bank AG, which both have local operations and large teams based in the country. Citigroup is the fourth-largest manager and bookrunner for loans to companies in the kingdom over the past 10 years, providing $6.5 billion of loans. JPMorgan and Deutsche Bank have lent $6.2 billion and $3.2 billion respectively, according to data compiled by Bloomberg.

Last year, the firm won approval to trade Saudi equities, its first banking license since 2004, people with knowledge of the matter said last September. The bank is directly investing in companies listed on the Saudi stock exchange after the bourse opened to direct foreign investment in June 2015. Citigroup joins banks including HSBC Holdings Plc and asset manager Ashmore Group in obtaining the license after the Arab world’s biggest stock market opened to direct foreign investment in June.

Citigroup has also played a role advising on some of the largest deals involving Saudi firms, with bankers based outside the country working on Saudi Basic Industries Corp.’s acquisition of General Electric Co.’s plastics unit for $11.6 billion in 2007. It was also part of a group that loaned $10 billion to Aramco in 2015.

“The bank now has a great deal of excess capital, and while it has no desire to use it unwisely, it is in the mood to invest," said Christopher Wheeler, a London-based analyst with Atlantic Equities LLP in London. "Boosting its role in Saudi as it opens up makes sense for a bank with one of the biggest, if not the biggest corporate and institutional banking platforms in the world."

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