Goldman Chiefs Court Saudis on Aramco IPO After 1MDB Fallout

Goldman Sachs Group Inc. is tapping its upper echelons to navigate a notoriously complicated region where it has stumbled of late: the Middle East.

After missing out on at least $25 billion in deals in Abu Dhabi -- the emirate that snubbed the U.S. bank for its involvement in the 1MDB scandal -- Goldman Sachs is making a push into Saudi Arabia.

Chief Executive Officer David Solomon -- the first chief of a Wall Street bank to visit the kingdom following the murder of government critic Jamal Khashoggi -- has turned to international banking head Richard Gnodde and former Donald Trump adviser Dina Powell to help lead the push. They’ve all spent months wooing top officials in Riyadh, vying for a slice of the world’s biggest initial public offering, people with knowledge of the matter said.

The charm offensive is paying off: the bank has been picked for a lead role on Saudi Aramco’s mammoth offering, according to people with knowledge of the matter. The deal promises to open the door to more lucrative mandates as the nation opens up to foreign investment and plans to privatize hundreds of state assets.

Read more: Goldman, JPMorgan Said to Be Among Banks in Top Aramco IPO Roles

Saudi Arabia is becoming the focus of Goldman Sachs’ Middle East strategy after the fallout from the 1MDB corruption scandal marked its abrupt downfall in Abu Dhabi, once one of its most lucrative markets in the region. Dealings with Qatar have become more complicated amid its diplomatic clashes with the kingdom. Global banks, including JPMorgan & Co. and Credit Suisse Group AG, are investing in Saudi Arabia as it promises some of the world’s biggest deals.

“Saudi Arabia is a goldmine of potential investment banking revenues for Goldman Sachs in the Middle East,” said Gary Dugan, chief executive officer of Singapore-based Purple Asset Management Pte. “They will need success on Aramco to offset the door closing in their face in Abu Dhabi.”

A spokesman for Goldman Sachs declined to comment.

Goldman Sachs had been the go-to bank for many of Abu Dhabi’s top dealmakers, but has missed out on billions of dollars of deals after being sued by two of its investment funds. The bank is accused of misleading investors when it helped 1MDB raise $6.5 billion through bond deals in 2012 and 2013, while allegedly knowing that the funds would be misappropriated. The firm has denied culpability in the scandal and laid the blame on Tim Leissner, a former partner who has pleaded guilty.

‘1MDB Controversy’

Mubadala Investment Co. publicly blacklisted the bank earlier this year, while a number of local lenders and state bodies have informally stopped doing business with the bank, people with knowledge have said.

“The 1MDB controversy has shaken Goldman severely,” said David Knutson, head of credit research for the Americas at Schroder Investment Management in New York. “The question is do they hunker down, go back into their shell and pause until they are confident they’ve reinstituted the culture that made Goldman what it was, or are they confident enough in the changes they have made to go back after something that is complex, challenging and potentially risky not unlike what they faced in Malaysia?”

Goldman Sachs is being sidelined as Abu Dhabi, home to 6% of global oil reserves, is in the midst of a consolidation wave as the emirate tackles lower oil prices and slowing economic growth. The government is merging banks and sovereign funds, selling non-core assets and bringing in international investors into core sectors such as oil and gas -- all of which mean big business for banks.

The U.S. bank advised on the initial public offering of Abu Dhabi National Oil Co.’s retail distribution unit in 2017 that raised $851 million and worked with Mubadala on the planned $3 billion IPO of its Emirates Global Aluminium unit. It was also involved in a controversial deal to raise $1.2 billion in bonds for a cluster of airlines linked to Etihad Airways.

Despite the fallout, Goldman Sachs continues to speak with companies in Abu Dhabi and seek new business there, one of the people said.

In Saudi Arabia, Goldman Sachs’s top executives have been cultivating relationships for years.

While the bank joined rivals in canceling its attendance at the nation’s marquee conference last year, CEO Solomon in April became the first head of a global U.S. bank to travel to the kingdom to boost ties after Khashoggi’s killing and dismemberment at a consulate in Istanbul.