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RBC is not listed as one of the nine banks leading the offering, but rather on a second tier of banks as a 'foreign joint bookrunner.'HAMAD I MOHAMMED/Reuters

Royal Bank of Canada has won a role in Saudi Aramco’s massive initial public offering, providing another signal that oil is largely unaffected by the breakdown in diplomatic relations between Canada and Saudi Arabia.

After years of anticipation, Saudi Aramco, the energy giant owned by the Saudi government, has revealed details of an IPO that is expected to value the company between US$1.2-trillion and US$2.3-trillion. RBC is the only Canadian bank listed as an underwriter on the deal, which is expected to raise between US$20-billion to US$40-billion. If successful, the IPO could be the largest ever.

RBC is not listed as one of the nine banks leading the offering, but rather on a second tier of banks as a “foreign joint bookrunner.” That means it will help sell shares to institutional investors, but will have a less important role than the top banks on the deal, which include Goldman Sachs Group Inc. and HSBC Holdings PLC.

However small, RBC’s inclusion is “a reminder that oil policy has long been shielded from the kingdom’s other political and economic whims,” said Andrew Bishop, head of research at Signum Global, which advises financial investors on geopolitical issues.

Global oil giant Saudi Aramco is working on an Initial Public Offering, with some estimates of the company's value topping US$2-trillion.

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At the same time, “it’s a sign that the Aramco IPO in particular is simply too important to politicize with petty squabbles,” he added.

In 2018, Foreign Affairs Minister Chrystia Freeland angered the kingdom’s royal family when she criticized Saudi Arabia’s jailing of women’s rights activists. The Saudi government responded by expelling Canada’s ambassador to the country, suspending new trade deals, barring the import of Canadian wheat and cancelling scholarships for thousands of Saudi students in Canada.

A few months later, in October, 2018, the Canadian government imposed sanctions on 17 Saudis after the slaying of dissident journalist Jamal Khashoggi.

Dennis Horak, the former Canadian ambassador to Saudi Arabia who was expelled during the battle, said that even at the height of the tension, Saudi Arabia determined that oil exports to Canada would not be affected. “When it comes to oil and Aramco, politics often takes a back seat if it benefits the kingdom," he wrote in an e-mail.

Although Saudi Arabia has given its blessing for RBC to participate, the bank’s involvement is not without risk. Notably, the lender could face reputational damage if the Saudi government infringes on human rights, fails to deliver strong returns for IPO investors, or does not modernize its economy as promised.

RBC also risks inflaming tensions at home. Canadian pro-oil pundits, as well as Alberta Premier Jason Kenney’s United Conservative Party government, have lamented that oil from undemocratic jurisdictions such as Saudi Arabia is flowing through Eastern Canadian refineries.

Asked about RBC’s participation in the Aramco IPO, Kavi Bal, a spokesman for Alberta Energy Minister Sonya Savage, said the bank continues to conduct business in Alberta, but added that “our obvious preference is for Canadian banks to further invest in Alberta and our energy sector.”

“In comparison to other countries, Alberta has the strongest environmental, social and governance policies in the world. We’d also remind investors that Alberta does not face the same geopolitical instability as the Middle East," he said.

For RBC, though, there is a trade-off, and if all goes well there is significant upside to playing a role in the Aramco IPO – chiefly, the potential to participate in future Saudi deals. Involvement is “largely about access for the future, proximity to the kingdom," said Phillip Cornell, senior fellow at the Atlantic Council Global Energy Center in Washington, D.C.

"There’s going to be, in principle, a lot of banking work and a lot of privatizations that are going on in lots of other parts of the economy … eliciting great fees for a lot of banks.”

Aramco’s IPO is led by global heavyweights such as Citigroup, Credit Suisse and Goldman. RBC did not disclose what percentage of the deal it has been given to underwrite, and spokesman Andrew Block said he could not offer details.

More information about the syndicate could be made public when Saudi Aramco files its prospectus in the coming days. Total fees for the dealers could top US$400-million.

Saudi Aramco has yet to say how many shares of Aramco will be sold to investors, but the stock will be listed on the Riyadh stock exchange.

With a report from James Bradshaw.