Saudi Arabia is launching a new share sale for its state-owned oil giant Aramco, aiming to raise up to $13.1 billion. This move comes as the world’s largest oil producer seeks to diversify its economy and attract new investors.
This offering, codenamed Project Bond, is seen as a crucial step for Saudi Arabia to broaden its investor base following a lukewarm response to Aramco’s initial public offering (IPO) in 2019. Back then, international investors expressed concerns about the company’s high valuation, Saudi government control, and the global shift away from fossil fuels.
The Aramco share sale comes amid a strong year for global stock offerings, with the total reaching $247.4 billion year-to-date, the highest level since 2021. This sale is expected to be one of the biggest in recent years.
Aramco Aims to Expand Investor Base
Aramco is offering up to 0.7% of its shares, with 10% of the offering reserved for retail investors if there’s enough demand. The sale will be priced between 26.7 riyals ($7.12) and 29 riyals per share, which is higher than the IPO price.
Analysts believe this share sale is unlikely to attract significant interest from foreign investors due to lingering concerns about environmental, social, and governance (ESG) factors. However, strong oil prices and Aramco’s attractive dividend payouts could entice some investors.
“Since the IPO, higher expectations on dividend payout and oil price have outweighed lower expectations on output,” said Hasnain Malik, head of equity research at Dubai-based Tellimer. “That improvement in the cash flow available for shareholders may not be enough to entice those foreign investors that did not participate in the IPO because of environmental concern on fossil fuels or governance concern on the priorities of the dominant sovereign shareholder.”
Saudi Arabia Seeks Funding for Vision 2030
The Aramco share sale is part of Saudi Arabia’s ambitious Vision 2030 plan to diversify its economy away from oil dependence. The kingdom’s de facto ruler, Crown Prince Mohammed bin Salman, has poured billions into mega-projects, including futuristic cities and electric vehicle initiatives, through the Public Investment Fund (PIF).
However, attracting foreign investment for these projects has proven challenging. Jim Krane, a research fellow at Rice University’s Baker Institute, believes the Aramco share sale is an alternative way to raise funds for Vision 2030.
“Selling Aramco shares is not the only way to fund Vision 2030, but it’s one of the easier options now that it’s clear foreign investors aren’t interested in buying stakes in Saudi gigaprojects,” said Krane. “The Saudis have not been able to attract enough foreign investment to cover much of the cost of building the Vision 2030 gigaprojects, like the massive beach resorts and futuristic cities.”
The Aramco share sale coincides with a crucial meeting of OPEC+, the group of oil-producing nations led by Saudi Arabia. OPEC+ is expected to discuss extending production cuts implemented in response to the pandemic. A decision to maintain these cuts could boost oil prices, further benefiting Aramco.
Saudi Arabia Needs to Prove Its Allure to Investors
While the Aramco share sale is expected to be a success, analysts are watching closely to see how much foreign investment it attracts. A lukewarm response could raise concerns about the long-term viability of Vision 2030 and Saudi Arabia’s ability to diversify its economy.
On the other hand, strong foreign participation would be a significant win for Saudi Arabia and validate its efforts to attract international investors. It would also provide a much-needed cash injection for Vision 2030 projects.
The Aramco share sale is a test for both Saudi Arabia and Aramco. The company needs to convince investors that it’s a sound investment despite the transition away from fossil fuels. Meanwhile, Saudi Arabia needs to demonstrate its commitment to economic reform and its ability to attract foreign capital. The outcome of this share sale will be closely watched by investors around the world.
Source: Reuters
