Saudi Arabia sets up new Aramco share sale that could raise $13.1bn

Saudi Arabia’s government on Thursday filed papers to sell a new stake in state oil giant Aramco that could raise as much as $13.1bn, a landmark deal to help fund Crown Prince and Prime Minster Mohammed bin Salman’s plan to diversify the economy.

In the main part of the deal, Saudi Arabia could raise $12bn by offering about 1.545 billion Aramco shares, equivalent to about 0.64 per cent of the company, if it prices the sale at the top end of a $7.12 (SAR26.7) to SAR29 range, according to Aramco’s filing on Riyadh’s Saudi Exchange.

The deal’s value could rise to $13.1bn at the top end under a so-called greenshoe option which would allow the sale of nearly 1.7 billion shares, or a 0.7 per cent stake. That option allows bankers to use shares to stabilise the price of the offering.

Investors have long anticipated the share sale as the energy giant has sought to widen its base while generating funds to turbocharge Saudi Arabia’s economic diversification programme.

“The offering provides us with an opportunity to broaden the shareholder base amongst both Saudi and international investors,” Aramco chief executive Amin Nasser told reporters on a call after the announcement.

“It also offers us an opportunity to increase liquidity and to increase our global index weighting.”

The offering is the culmination of a years-long effort to sell another chunk of one of the world’s most valuable companies following its record-setting IPO in 2019 raised $29.4bn. About 10 per cent of the latest offering will be reserved for retail investors, subject to demand.

Since the IPO, Aramco has remained a cash cow for the Saudi government, financing a mammoth economic drive to end the kingdom’s “oil addiction”, as the crown prince once called it.

The latest deal will allow the kingdom to finance large domestic projects tied to that agenda, said Hasan Alhasan, senior fellow at the International Institute for Strategic Studies.

Having missed its target for foreign direct investment and with a budget deficit of up to $21bn in sight, “the kingdom is resorting to the sale of equity in Aramco and debt issuances,” he said.

“The kingdom is likely to continue redirecting capital to other sectors including renewable energy, technology, tourism, logistics and manufacturing, which Riyadh hopes will constitute sources of long-term economic growth,” he added.

Aramco shares closed 0.17 per cent lower on Thursday at $7.76 (SAR29.1), giving the company a market capitalisation of about $1.87tn. Its IPO price valued it at $1.7tn, but shares traded 10 per cent higher on their debut, roughly in line with its current valuation.

The company lifted dividends to almost $98bn in 2023 from the $75bn it had been paying annually, despite profit having dropped by nearly a quarter. It expects an outlay of $124.3bn this year.

Aramco has also invested in refineries and petrochemical projects in China and elsewhere expanded its retail and trading businesses, and sharpened its focus on gas, making its first foray into liquefied natural gas abroad last year.

Morgan Stanley, Citi, Goldman Sachs, HSBC, Saudi National Bank, Bank of America and JPMorgan are acting as joint global coordinators on the deal, with local banks Al Rajhi Capital, Riyad Capital, Saudi Fransi Capital acting as joint bookrunners.

There were roughly half the number of banks on the deal in comparison to Aramco’s IPO in 2019.

Aramco fuels diversification drive

Saudi Arabia’s Crown Prince Mohammed bin Salman has poured hundreds of billions of dollars through the kingdom’s sovereign wealth fund into mega projects, and everything from electric vehicles to sports and a new airline, to diversify the economy away from hydrocarbons and create jobs.

But lower oil prices and production weighed on economic growth last year while spending rose, leading to a fiscal deficit of around 2 per cent of GDP, with a similar deficit expected this year.

Aramco introduced a special performance-based dividend last year, providing cash to the kingdom and helping to lure new investors.

The company has also signed up more banks as market-makers to help improve liquidity in the shares.

The world’s biggest oil exporter trades at a higher price-to-earnings ratio than other global oil companies, including ExxonMobil, BP and Shell.

The stock is down about 12 per cent this year, while shares of ExxonMobil and BP are up around 14 per cent and 4 per cent respectively.

Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries, helping engineer price moves on world oil markets.

Aramco currently produces about 9 million barrels of crude a day, about three quarters of its maximum capacity, to comply with output cuts agreed by OPEC and its allies, known as OPEC+.

OPEC+ is set to decide its next production policies on Sunday, and several sources and analysts expect the meeting to roll over existing cuts into the second half of 2024.

Should OPEC+ surprise the market and cut production further, oil prices could rise from the current roughly $82 a barrel, but Aramco would have to reduce output and face even lower revenues.

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