Saudi Arabia to raise $11 bn from Aramco’s mega share sale

Saudi Arabia will raise $11.2 billion from Saudi Aramco’s mega stock offering, the biggest such deal globally in about three years. The share sale deal will help fund a multitrillion-dollar push to transform the kingdom’s economy. The Saudi government will sell almost 1.55 billion shares for 27.25 riyals ($7.27) apiece, which is a six per cent discount to the stock’s last close before the deal was announced.

The price range is in line with the average for offers of a similar size over the past decade. The final price is in the bottom half of a proposed range of 26.70 riyals to 29 riyals, according to a report by Bloomberg. Aramco shares have been under pressure recently, even dropping to their lowest levels in over a year in the days leading up to the massive offer which has drained liquidity from the Saudi market.

The proceeds will help Crown Prince Mohammed Bin Salman’s ambitious plans to revamp the economy with investments including in sports, artificial intelligence, tourism and the desert project of Neom. The kingdom’s budget has been in a deficit for six quarters, and it has raised over $40 billion from local and international markets this year to fill the gap.

Saudi Arabia had demand for all shares on offer in a few hours after the books opened Sunday, with Aramco’s $124 billion annual dividend emerging as a big draw. The oil giant has increased the payout by more than 60 per cent since it listed.

“We like Aramco. It’s selling at a reasonable price and we recommend it for investors as a three-year strategic investment,” said Anita Gupta, head of of equity strategy at Emirates NBD PJSC in Dubai. The stock is becoming more attractive as a greater free float will increase trading volume and “the dividend yield is bigger than other mega-caps or oil majors.”

In addition to the company’s size and position as state champion that make an Aramco offering stand out, secondary offerings are rare in the region. Prior deals include Saudi Telecom Co. and Tadawul Group Holding, which operates Riyadh’s stock exchange — both priced at a roughly 10 per cent discount.

The deal attracted significant interest from foreign investors, Bloomberg News reported Thursday. It wasn’t immediately clear exactly how much demand came from overseas, but those investors put in enough bids to more than fully cover the offering, people familiar with the matter said.

“Offering shares with such attractive yields is likely to attract both large institutional clients and retail investors,” said Marwan Haddad, managing director and lead portfolio manager for Middle East and North Africa equities at Azimut. The retail portion of the offering was fully subscribed, Aramco said in the statement announcing the final price.

That’s a turnaround from the firm’s IPO in 2019, when global funds had largely stayed away and left the government reliant on local investors. It had put the spotlight on foreign participation in the current sale, even as the oil market outlook darkens amid strong supply and demand concerns in China.

And while Aramco boasts the world’s biggest dividend, its stock is expensive compared with major Western oil companies. The sale comes just as oil prices in London slid below $80 a barrel for the first time since February.

That’s below the near $100 that Saudi Arabia needs to balance its budget, according to data from the International Monetary Fund. The Saudi government owns about 82 per cent of Aramco, while the Public Investment Fund holds a further 16 per cent stake. The kingdom will continue to be the main shareholder after the offering.

SNB Capital is lead manager of the share sale, according to a previous statement. It is also serving as a joint global coordinator along with Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley. M. Klein & Co. and Moelis & Co. are independent financial advisers on the offering, according to the statement.

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Published: 07 Jun 2024, 07:38 PM IST

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