Saudi Aramco set to raise $11.2bn after selling shares at lower end of expectations

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Saudi Arabia is poised to raise more than $11.2bn by selling shares in oil giant Aramco to help fund its spending plans, after pricing the stock at the lower end of expectations, the company said on Friday.

Aramco shares were priced at $7.27 (SAR27.25), near the bottom of a SAR26.7 to SAR29 range used in marketing the sale.

The offering was covered four to five times, a person familiar with the matter said.

Foreign demand was stronger than expected, the person and two others familiar with the matter said and was greater than international demand for Aramco’s 2019 record-breaking IPO. One of the sources said demand included interest from China and elsewhere in Asia and another said the offering drew from Europe and London.

The Saudi government and Aramco did not immediately respond to a request for comment on the demand.

Saudi Arabia has been seeking to lure international investment to pour tens of billions of dollars into projects to diversify away from its reliance on oil. Yet foreign investment has repeatedly missed targets.

Aramco bolsters diversification

Saudi de facto ruler Crown Prince and Prime Minister Mohammed bin Salman’s Vision 2030 is funding projects from electric vehicles to futuristic cities in the desert, mainly via its Public Investment Fund (PIF).

The $925bn PIF, after scaling back some of its flagship “giga-projects”, aims to sharpen its focus, Reuters has reported.

Proceeds from the share sale are likely to be funnelled to the PIF, sources and analysts have said, though funds could also help plug Saudi Arabia’s likely budget deficit this year as the oil price has weakened and on expectations of more oil supply later this year.

“It is not clear that oil prices will continue to go up the way they have over the last several years,” Edward Al-Hussainy, head of emerging market fixed income research at Columbia Threadneedle, said on the reason for the sale.

The Government of the Kingdom of Saudi Arabia and Saudi Aramco have announced the final offer price for the secondary public offering of ordinary shares of Saudi Aramco

For more information:https://t.co/DpIzElUhfY#aramco pic.twitter.com/MVha8FKyvY

— aramco (@aramco) June 7, 2024

Brent crude was trading just below $80 a barrel on Friday, though still set for a third straight weekly loss. The IMF projected in April that Saudi Arabia needs oil at $96.2 to balance its budget.

The de facto Saudi-led Organization of the Petroleum Exporting Countries and allies, including Russia, agreed to extend most production cuts into 2025 but outlined a detailed plan for eight members to unwind some voluntary cuts over a year from October, market conditions permitting.

The Saudi government “need this liquidity, and they are very cash-poor because of these investment projects,” Al-Hussainy said, adding, “They’re coming at this from a position of weakness.”

The pricing is at a nearly 4 per cent discount to where Aramco’s shares closed on Thursday and values the company at about $1.76tn.

The Saudi government is selling a roughly 0.64 per cent stake in Aramco. The offering could then be boosted to 0.7 per cent of the oil giant in a so-called greenshoe option, which allows bankers to use shares to stabilise the price of the offering.

If that option is exercised, Aramco would raise roughly $12.36bn. The world’s top oil exporter exercised a greenshoe option after its 2019 IPO.

The shares are set to start trading next Sunday on Riyadh’s Saudi Exchange.

The offering, codenamed Project Bond by the banks involved, has been in the works for months, sources have said.

Read: Sinopec reportedly secures $1.1bn contract to construct gas pipelines for Aramco