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Saudi Arabia doubles sovereign fund’s stake in Aramco

The fund has held a 4 per cent stake in Aramco since 2022 and indirectly holds another 4 per cent that was transferred last year to Sanabil

by Reuters

March 8, 2024

Saudi Arabia transfers 8% Aramco stake to PIF

Image courtesy: Saudi Aramco

Saudi Arabia transferred an 8 per cent stake in Aramco to the country’s Public Investment Fund, as the kingdom reorganises its holdings to boost the sovereign wealth fund ahead of a potential public offering in the oil giant.

The stake is worth roughly $163.6bn, according to Aramco’s market capitalisation, LSEG data shows.

Saudi Arabia is poised to sell more shares in Aramco later this year, sources told Reuters last month, which could boost financing for the kingdom’s ambitious economic reform agenda known as Vision 2030.

PIF declined to comment on which entities the additional shares would be transferred to.

The fund has held a 4 per cent stake in Aramco since 2022 and indirectly holds another 4 per cent that was transferred last year to Sanabil, which it wholly owns.

The transfer “is a continuation of Saudi Arabia’s long-term initiatives to boost and diversify the national economy and expand investment opportunities in line with Saudi Vision 2030,” state news agency SPA said on Thursday, citing Crown Prince and Prime Minister Mohammed bin Salman.

“The transfer will also solidify PIF’s strong financial position and credit rating,” SPA added.

PIF has raised $7bn from two separate debt sales this year, taking advantage of strong investor demand for emerging-market issuers.

Its total debt is estimated at around $36bn, Global SWF said in a report dated February 29, adding that the sovereign fund was unlikely to halt its borrowing spree.

“The transfer will provide (the PIF) with over $9bn in annual dividend revenue from Aramco,” said Justin Alexander, director of Khalij Economics and GCC analyst for GlobalSource Partners.

PIF Governor Yasir al-Rumayyan, who also chairs Aramco, said last month the fund planned to increase its deployment of capital to $70bn a year after 2025, from $40bn to $50bn currently.

Aramco’s shares closed at SAR31.75 ($8.47) on Thursday, slightly below their 2019 IPO price of SAR32 riyals, giving it a market capitalisation of nearly $2.05tn.

PIF is central to Crown Prince Mohammed bin Salman’s plan to diversify the economy by building new industries and giga-projects.

Aramco, PIF drive diversification

The project has transformed the fund from a sleepy sovereign investor into a global investment vehicle that makes multi-billion dollar bets on anything from technology to sports.

PIF invested $31.5bn last year to become the world’s top-spending sovereign wealth fund.

Before the transfer was announced on Thursday, it had roughly $700bn in assets under management and aims to grow that to $2tn by 2030.

“This is a private transfer and the company is not a party to the transfer and did not enter into any agreements or pay or receive any proceeds from the transfer,” Aramco said in a filing on the Saudi Exchange.

“The transfer will not affect the company’s total number of issued shares, and the shares transferred will rank equally alongside other existing ordinary shares in the company,” it said, adding it would have no impact on its operations, strategy, dividend policy or governance framework.

The state holds 82.186 per cent of Aramco following the transfer, said Aramco, which reports fourth quarter results on Sunday.

The government is reliant on Aramco’s generous payouts, including royalties, a base dividend and an additional performance-linked dividend introduced last year.

The state has infused huge amounts of cash into PIF, including a $40bn transfer in 2020, as it seeks to overhaul the economy and cut reliance on oil revenue.

Among its long list of endeavours, NEOM is a planned futuristic city in the desert that is set to host the 2029 Asian Winter Games. Crown Prince Mohammed bin Salman said in July 2022 that NEOM would publicly list this year and that its first phase alone would cost about $320bn.

“The funding requirements for progressing with various projects is increasing,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

“The move reflects both the central role of the PIF in driving economic diversification and the importance of oil revenues for funding the investment programme. The government will likely receive a smaller share of the overall dividend payment, but the main objective is to progress with economic transformation.”