(CTN News) – Saudi Arabia will raise $11.2 billion through Saudi Aramco’s massive stock offering, the world’s largest such transaction in approximately three years. The share sale will help fund a multitrillion-dollar effort to restructure the kingdom’s economy. The Saudi government would sell over 1.55 billion shares at 27.25 riyals ($7.27) each, a 6% discount to the stock’s final close before the deal was announced.
Aramco Share Sale Details
The price range is consistent with the average for similar-sized offers over the past decade. According to Bloomberg, the final price falls within the lower half of a recommended range of 26.70 to 29 riyals. Aramco shares have been under pressure recently, falling to their lowest levels in over a year in the days preceding the big offer, which has sapped liquidity from the Saudi market.
The earnings will support Crown Prince Mohammed Bin Salman’s ambitious plans to revitalize the economy, which include investments in sports, artificial intelligence, tourism, and Neom’s desert project. The kingdom’s budget has been in deficit for six quarters, and it has raised more than $40 billion from domestic and international markets this year to close the gap.
Saudi Arabia saw demand for all shares on offer within a few hours of the books opening Sunday, with Aramco’s $124 billion annual dividend emerging as a major pull. Since listing, the oil behemoth has grown its payment by more than 60%.
“We like Aramco.” It’s being sold at a reasonable price, and we recommend it to investors as a three-year strategic investment,” said Anita Gupta, head of equities strategy at Emirates NBD PJSC in Dubai. The company is becoming more appealing as a larger free float boosts trading activity, and “the dividend yield is higher than other mega-caps or oil majors.”
In addition to the company’s size and position as a state champion, an Aramco offering is unique in the region. Prior transactions included Saudi Telecom Co. and Tadawul Group Holding, which runs Riyadh’s stock exchange at a 10% discount.
Bloomberg News reported on Thursday that foreign investors expressed strong interest in the sale. It wasn’t immediately obvious how much demand came from overseas, but those investors bid enough to more than cover the offering, according to sources familiar with the situation.
“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 Eastern and North African stocks at Azimut. According to Aramco’s statement announcing the final price, the retail portion of the offering had been completely subscribed to.
Oil Market Context and Aramco’s Position
That represents a significant shift from the firm’s IPO in 2019, when foreign funds mainly stayed away, leaving the government reliant on local investors. The current sale focused on foreign participation even as China’s oil market outlook darkened due to increasing production and demand concerns.
While Aramco pays the highest dividend in the world, its stock is costly compared to other large Western oil firms. The deal came as oil prices in London fell below $80 per barrel for the first time since February.
According to International Monetary Fund figures, that is less than the nearly $100 required by Saudi Arabia to balance its budget. The Saudi government controls approximately 82% of Aramco, with the Public Investment Fund holding the remaining 16%. The kingdom will remain the primary stakeholder following the offering.
According to a previous statement, SNB Capital is the primary manager of share sales. It also works as a joint global coordinator with Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Bank of America Corp., and Morgan Stanley. According to the release, M. Klein & Co. and Moelis & Co. serve as independent financial advisers on the offering.
