Saudi Arabia Appointment will start ball rolling for privatisation

The board of directors of Saudi Arabian Airlines (Saudi Arabian) is understood to have invited international investment banks to prepare bids to advise on the privatisation of the state-owned carrier. Local bankers say four banks are to submit proposals during June, following which mandated institutions will be asked to appoint consortiums to advise on the proposed sale of the loss-making airline. These groups are expected to comprise local banks, law firms and technical advisers.

The identity of the banks has not been revealed, but sources in Riyadh say they are likely to include Chase Manhattan Bank, which arranged a $1,940 million loan for the airline last year, JP Morgan and Merrill Lynch among others.

A target date for the sell-off has not been established. The form the privatisation will take is also unclear. ‘People have been talking about privatisation for years, but nobody is clear on when it is going to start and what exactly will be sold off,’ says a banker in Riyadh. Lawyers suggest Saudi Arabian strategists are likely to favour selling off separate units within the airline first, such as the catering operations, on-board sales and international sales offices. Other options include selling the airline’s international routes and, more ambitiously, the sell down of a stake of around 30 per cent.

‘Selling off catering and sales units is seen as the most appealing option as this would involve the least job losses for Saudi employees,’ says a Jeddah-based lawyer.

A decision on which banks will be mandated to advise on the sell-off is expected by the end of June. Banks would then start the process of appointing technical and legal advisers, though sources say Saudi Arabian may yet decide to appoint advisers itself.