Source – Morningstar
Saudi Arabia is set to sell approximately $12 billion worth of shares in its national oil company, Saudi Aramco, as part of its efforts to bolster its sovereign wealth fund. The kingdom intends to sell at least 1.545 billion shares, representing 0.64% of the world’s largest oil company, at a price range between SR26.7 and SR29 per share. Additionally, Saudi Arabia has the option to sell up to an additional 154.5 million shares, potentially generating an extra $1 billion if fully exercised.
Timing and Objectives of the Sale
Amin Nasser, the CEO of Saudi Aramco, noted that the decision to conduct the share sale was made by the government. The offering presents an opportunity for the company to diversify its investor base internationally. Nasser refrained from disclosing anchor investors, stating that the process is scheduled to commence on June 2 and conclude on June 6. He emphasized that the sale offers an attractive value proposition and growth potential for shareholders, highlighting the company’s substantial dividend payouts, which amounted to $98 billion in 2023 and are expected to reach $124 billion this year.
Price and Market Dynamics
Despite a decline in Aramco’s share price since the beginning of the year, currently standing at SR29, Nasser denied that the secondary offer is priced at a discount compared to its IPO in 2019. He explained that additional bonus share rounds meant that Aramco investors effectively paid SR26.4 per IPO share. The offering is seen as an essential step in Saudi Arabia’s long-term strategy to sell more shares in the state-owned oil producer, following its record-setting IPO in 2019.
Impact on the Economy and Sovereign Wealth Fund
The proceeds from the share sale are expected to benefit Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), which plays a pivotal role in the kingdom’s economic diversification efforts. While the sale will not directly impact Aramco’s capital spending plans, it will contribute to strengthening the PIF’s assets under management, aligning with the government’s goal to increase the fund’s size to about $1 trillion by 2025. The PIF has been a significant recipient of funds from previous Aramco share sales, including the initial IPO in late 2019.
Economic Context and Future Plans
The share sale comes amid Saudi Arabia’s review of mega-projects and efforts to balance economic growth beyond the oil industry. The government aims to maintain robust growth by leveraging the PIF’s investments and dividends from Saudi Aramco. With the kingdom’s focus on economic transformation, the share sale underscores its commitment to long-term fiscal sustainability and diversification away from reliance on oil revenues.
