Saudi Arabia transfers 4% Aramco stake to PIF

Saudi Arabia’s Crown Prince and Prime Minister Mohammad bin Salman has completed the transfer of 4 per cent of Aramco shares worth nearly $80bn to Sanabil Investments, a wholly owned company of the Public Investment Fund (PIF).

Crown Prince Mohammed bin Salman said that the transfer of part of the kingdom’s shares in Aramco is a continuation of the country’s long-term initiatives to boost and diversify the economy and expand investment opportunities under Vision 2030.

Following the transfer, the state remains the largest shareholder in Aramco after the transfer, as it retains more than 90 per cent of the company’s shares. Saudi Arabia first announced plans to transfer Aramco’s stake to the state wealth fund in February 2022.

Aramco said at the time that the transfer was a private transaction between the government and the state fund. “The company is not a party to the transfer and did not enter into any agreements or pay or receive any proceeds from that transfer,” Aramco said in a statement.

HRH Crown Prince Announces Completion of the Transfer of 4% of State-owned Shares in Saudi Aramco to PIF’s Wholly-owned Sanabil Investments.https://t.co/2WdQvNS36J#SPAGOV pic.twitter.com/60IilndVy2

— SPAENG (@Spa_Eng) April 16, 2023

The energy giant said the transaction would not affect the number of issued shares nor its operations, strategy, dividends distribution policy or governance framework. Aramco completed the world’s largest initial public offering in late 2019, raising $29.4bn with the proceeds transferred to the PIF.

Saudi Arabia’s strategy

Meanwhile, PIF is Crown Prince Mohammed bin Salman’s vehicle of choice to transform the kingdom’s economy and diversify it away from heavy reliance on oil revenues.

Crown Prince said the state fund is tasked with stimulating inward investment, accessing new technologies, developing local industries and addressing widespread underemployment in the country. PIF is funding a host of new cities in the desert under Vision 2030 including the $500bn futuristic NEOM City, the Red Sea Development Company’s mega tourism project and the Qiddiya entertainment park.

Read: S&P Global, Moody’s raise Saudi Arabia rating on reform agenda

The transfer of existing shares is expected to bolster the PIF’s strong financial position and high credit ratings in the medium term. The move will also help to boost PIF’s assets under management, which are targeted to grow to about $1.07tn (SAR4tn) by the end of 2025.

Aramco’s growth prospects

On Friday, Fitch Ratings upgraded Aramco’s long-term foreign and local currency issuer default ratings, citing the company’s strong business profile and its ambitions to deliver a “sustainable and progressive dividend”.

The ratings agency upgraded Aramco’s rating to A+ from A with a stable outlook. “Saudi Aramco is the world’s largest oil producer and Saudi Arabia’s national oil company. Its financial profile benefits from strong pre-dividend free cash flow generation, conservative financial policies and a net cash position,” said Fitch.

Aramco said its free cash flow soared to $148.5bn, compared to $107.5bn in the same period in 2021. The state-owned energy giant said its capital expenditure (capex) surged 18 per cent year-on-year to $37.6bn in 2022 as progress continues on multiple fronts to deliver reliable, affordable and more sustainable energy. It expects this year’s spending to range between $45bn and $55bn including external investments.

Fitch said the increase in Aramco’s annual capex is largely driven by the company’s efforts to increase the maximum sustainable capacity of oil by one million barrels per day to 13 million barrels per day by 2027 as mandated by the government. The oil major is also ploughing billions of dollars in strategic initiatives, including gas production, liquids to chemicals production and green projects.

Read: Saudi Aramco profit surges to $161.1bn in 2022, raises dividend