JPMorgan Eyes $100 Million Payday on Trade Linked to Aramco Deal

JPMorgan & Chase Co. is set to earn more than $100 million on a recent trade tied to the sale of a stake in Saudi Aramco’s oil pipelines, a windfall that stands out even in the sprawling interest-rate swap market, people familiar with the matter said.

The bank is poised to book gains on a hedging transaction with U.S. investment firm EIG Global Energy Partners LLC, which agreed last month to invest $12.4 billion in the pipelines, the people said. JPMorgan advised Aramco on the deal and was one of two banks that helped it arrange a loan of more than $10 billion offered to the buyers, the people said.

Given the size of the financing, EIG separately entered into a so-called swap deal with JPMorgan to guard against fluctuations in interest rates. JPMorgan is in line for the nine-figure profit after markets moved in its favor, according to the people, who asked not be identified discussing sensitive information.

While buyers in an acquisition this size normally turn to a group of lenders to manage their financing risk, JPMorgan was the sole bank on the hedging transaction, the people said. The size of the return was commensurate with the risk the bank took onto its books as counterparty on the swap, one of the people said.

Fee Pool

Aramco wasn’t a counterparty on the swap trade, the people said. JPMorgan hasn’t yet booked the profits on the hedging transaction, and the size of the return could still change, the people said.

Representatives for Aramco and JPMorgan declined to comment, while a spokesperson of EIG didn’t immediately provide comment.

Bespoke hedges have long offered profits to Wall Street firms that can outstrip those from lending or advising on deals, though they can also prompt unhappy clients if gains get too large. JPMorgan’s payday highlights why global banks continue to chase big deals from Aramco, with the expectation of profiting from such ancillary work even if the Saudi energy company itself doesn’t dole out large advisory fees.

Deal Push

EIG is leading a consortium that’s buying a 49% interest in leasing rights over Aramco’s oil pipelines, according to an April statement. Abu Dhabi sovereign wealth fund Mubadala Investment Co. has said it’s also in talks to join the investor group.

Advisers are getting ready for more deals from the state-owned energy company. Aramco is considering the sale of a stake in its vast natural gas pipeline network, Bloomberg News reported last month. It’s also reviewing its upstream business, a move that could Aramco bring in external investors to some of its oil and gas assets, people with knowledge of the matter have said.

Aramco is one of JPMorgan’s biggest clients globally, with the relationship between the two stretching back decades. JPMorgan was among the roster of banks that worked on Aramco’s $29.4 billion IPO in 2019 -- still the world’s largest-ever listing. Banks on the listing shared a fee pool of just over $100 million, which was unusually small relative to the size of the IPO.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.