S. Arabia sets new test for global interest with $13.1b Aramco sale

Saudi Arabia and its bankers will on Sunday morning start taking orders for as much as $13.1 billion worth of shares in its energy giant Aramco, in a major test of international investor interest in its market.

In a long-anticipated announcement on Thursday, the kingdom and Aramco detailed plans to sell up to a 0.7% in the state-controlled oil company, with 10% of the offering reserved for retail investors, based on demand. Order-taking will run through June 6 and the deal will price on June 7.

The offering - codenamed Project Bond according to sources - has been trailed for months as a key step in diversifying the company’s investor base since its record-breaking initial public offering (IPO) in 2019, as well as for its potential to further fuel the kingdom’s massive economic diversification programme.

It also marks a test of interest in Saudi markets after lukewarm interest from international investors in the 2019 flotation amid concerns about a high valuation, Saudi government control and the energy transition away from hydrocarbons.

International investors have been similarly reticent about the kingdom’s mega-projects, from beach resorts to new cities.

Investors buying into Aramco will need to weigh environmental concerns against its rich payouts.

“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.”

When asked about whether there had been any interest from so-called anchor investors to take a major chunk of the offering, Aramco Chief Financial Officer Ziad Al-Murshed gave little away.

He noted the shares are on sale above the IPO price - within a range of 26.7 riyals ($7.12) to 29 riyals, after they closed at 29.1 riyals on Thursday, valuing the company at $1.87 trillion. Aramco’s IPO valued it at $1.7 trillion.

The sale comes as stock offerings globally have reached $247.4 billion in the year to date, the highest level since 2021, according to Dealogic data. It will be one of the biggest share sales in the last decade.

Saudi Arabia Crown Prince Mohammed Bin Salman has poured hundreds of billions of dollars through the kingdom’s sovereign Public Investment Fund (PIF) into massive projects, and everything from electric vehicles to sports and a new airline, to diversify the economy away from hydrocarbons and create jobs.

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 Jim Krane Research fellow, Rice University’s Baker Institute Houston.

“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. It’s not for lack of trying.”

Krane expects most of the buyers of the offering will be Saudis. “So, it’s an indirect form of self-funding by Saudi investors who receive shares of Saudi Aramco instead of a piece of Neom or the New Murabba,” he said, referring to two of the mammoth projects being spearheaded by the PIF.

Selling on the Saudi Exchange also offers lighter regulatory and transparency requirements, he added.

The kingdom is supported by a familiar phalanx of advisers, as for the Aramco IPO. Wall Street dealmaker Michael Klein’s firm Klein & Co and U.S. boutique firm Moelis & Co are acting as independent advisers on the deal, according to a filing with the Saudi Exchange Thursday.

Saudi National Bank’s investment banking arm SNB Capital is acting as lead manager in addition to its role as joint global coordinator alongside Morgan Stanley, Citi, Goldman Sachs, HSBC, Bank of America and JPMorgan.

Aramco CEO Amin Nasser told reporters the sale was an opportunity for current and new investors to build a sizeable position in the company, and for Aramco to broaden its shareholder base and boost the liquidity of its shares.

Saudi Arabia said Friday it will sell a second sliver of stock in its state oil giant Aramco worth billions of dollars, its first tranche since its initial public offering back in 2019.

Saudi Aramco, formally known as the Saudi Arabian Oil Co., acknowledged the stock sale in a corporate disclosure online. It put the number of shares being offered at 1.545 billion, priced at between $7.12 and $7.73 a share.

At the high range of the valuation, that would make the shares worth some $11.9 billion. They’ll begin being sold on Sunday to institutional investors and on Monday to retail investors.

Aramco has a market value of $1.8 trillion, making it the world’s sixth most valuable company behind Microsoft, Apple, NVIDIA, Google owner Alphabet and Amazon respectively.

Just 1.73% of the company, a narrow sliver, has been traded on the Tadawul, Saudi Arabia’s stock exchange, since the company’s 2019 IPO. This additional offer represents 0.64% of all the company’s shares.

Reuters