Saudi Arabia’s state-owned oil giant, Saudi Aramco, announced plans to sell new shares in a move that could raise up to $13.1 billion. This significant deal is designed to fund the kingdom’s ambitious economic diversification plans, lessening its dependence on oil revenue.
Offering Details and Potential Impact
The Aramco share sale involves offering roughly 1.545 billion shares, representing 0.64% of the company’s total shares. The offering price could range between 26.7 riyals ($7.12) and 29 riyals per share, potentially generating $12 billion for Saudi Arabia. A “greenshoe option” allows for the sale of an additional 1.7 billion shares, pushing the total potential value to $13.1 billion. This option enables banks to stabilize the offering’s price by using these additional shares.
The share sale has been anticipated by investors for some time, as Aramco seeks to expand its shareholder base and generate funds to fuel Saudi Arabia’s economic diversification agenda. “This offering broadens our shareholder base among both Saudi and international investors,” said Aramco CEO Amin Nasser. “It also allows us to increase liquidity and global index weighting,” he added during a press call.
Landmark Deal Follows Record-Setting IPO
This share sale marks another significant step for Aramco after its record-breaking initial public offering (IPO) in 2019, which raised $29.4 billion. The latest offering allocates 10% of the shares to retail investors, subject to demand. Industry sources predict the offering could take place as early as June 2024.
Since its IPO, Aramco has remained a vital source of income for the Saudi government, financing ambitious economic initiatives aimed at reducing the country’s reliance on oil. “The kingdom is resorting to Aramco share sales and debt issuances to fund large domestic projects tied to its economic diversification goals,” explained Hasan Alhasan, a senior fellow at the International Institute for Strategic Studies.
Economic Diversification Remains a Challenge
Despite the new share sale, Saudi Arabia faces challenges in its economic diversification efforts. The kingdom fell short of its foreign direct investment targets and anticipates a budget deficit of up to $21 billion. “Saudi Arabia is likely to continue directing capital towards renewable energy, technology, tourism, logistics, and manufacturing sectors, hoping these will become long-term economic growth engines,” said Alhasan.
Aramco’s share price closed slightly lower on Thursday at 29.1 riyals ($7.76), with a market capitalization of roughly $1.87 trillion. While the IPO valued the company at $1.7 trillion, Aramco shares currently trade at a similar valuation. Notably, the company increased its dividends to nearly $98 billion in 2023, up from $75 billion annually, despite a profit decrease of almost 25%. Aramco projects an expenditure of $124.3 billion this year.
Beyond its core business, Aramco has invested in refineries and petrochemical projects globally, expanded its retail and trading operations, and prioritized natural gas ventures. Last year, the company made its first foray into liquefied natural gas abroad.
The share sale involves a consortium of banks, including Morgan Stanley, Citi, Goldman Sachs, HSBC, Saudi National Bank, Bank of America, and JPMorgan, acting as joint global coordinators. Local banks Al Rajhi Capital, Riyad Capital, and Saudi Fransi Capital are also involved as joint bookrunners. Notably, this is roughly half the number of banks involved in Aramco’s 2019 IPO.
Source: Reuters
