Using ‘Greenshoe Option’, Saudi Aramco Raises IPO to Record $29.4B; Banks Seek ‘Incentive Fee’

Saudi Aramco sold millions of additional shares of its initial public offering using a so-called “greenshoe option” that has raised the size of its IPO by nearly $4 billion.

A greenshoe option in an IPO is a provision that grants the underwriter the right to sell investors more shares than initially planned by the issuer if the demand for a security issue proves higher than expected.

Amin Nasser is the President and CEO of Saudi Arabian Oil Company Saudi Aramco.

Amin Nasser is the President and CEO of Saudi Arabian Oil Company Saudi Aramco.

The extra shares “had been allocated to investors during the book-building process and therefore, no additional shares are being offered into the market today,” Aramco said, according to reports. The company initially raised $25.6 billion last month  by offering 3 billion shares worth 1.5% of the company.

According to Reuters, global banks who worked on the IPO are pushing for an additional “incentive fee” as they try to boost relatively low earnings from the deal. “The energy giant’s earlier decision not to market the deal internationally means most banks involved in selling Aramco’s shares will earn less than $5 million each, according to two of the sources, a low amount for such a large deal,” Reuters reports.

“The payment of incentive fees – used to keep the base fees on a listing low and push banks to work harder – is increasingly common for IPOs in Europe and the U.S. but rare in the Gulf. The sources did not say how much extra the banks could be paid, although it would likely vary between institutions,” according to Reuters.