Saudi Aramco’s $12 billion share offering was fully subscribed within hours of its launch on Sunday. This rapid adoption underscores investor confidence in the company’s prospects and Saudi Arabia’s broader economic transformation agenda.
Strong demand for shares
The shares, priced between 26.70 and 29 rials, were quickly bought by a mix of local and international investors. While specific details on the extent of foreign involvement are not yet available, the rapid sale highlights strong demand for Aramco shares.
Importance of foreign investment
The participation of international investors is a critical measure of global interest in Saudi assets. During Aramco’s initial public offering (IPO) in 2019, foreign investors were cautious, leading the government to rely heavily on local buyers. That IPO raised $29.4 billion, with total orders reaching $106 billion, but only about 23% of the shares were allocated to international investors.
Attractive dividends
A major draw to this share sale is Aramco’s substantial dividends. Bloomberg Intelligence estimates an annual payout of $124 billion, offering a dividend yield of 6.6%. This makes Aramco’s dividends particularly attractive, despite the high valuation and lack of share buybacks.
Stock performance
Despite the successful sale, Aramco’s share price fell as much as 2.9% to 28.30 rials on Sunday, giving the company a market value of around $1.8 trillion. Since the beginning of the year, the stock has declined about 14%, hitting its lowest point in more than a year following the announcement of the government’s share sale.
Government participation
The Saudi government currently owns about 82% of Aramco, and the kingdom’s wealth fund owns an additional 16%. Even after this sale, the government will remain the largest shareholder.
Future plans for stock sales
Crown Prince Mohammed bin Salman mentioned in 2021 that the government could sell more Aramco shares in the future. This plan gained traction last year when the kingdom began consulting advisers about another possible share offering.
Financing economic diversification
This share sale is among the largest globally since Aramco’s initial public offering. The proceeds will fund several projects aimed at diversifying Saudi Arabia’s economy, including initiatives in artificial intelligence, sports, tourism and the Neom megaproject.
Address the budget deficit
The sale also supports Saudi Arabia’s efforts to manage its budget deficit. This year, the government has raised $17 billion through international debt sales, outpacing other emerging market sovereigns. Domestically, it has sold $25.5 billion in rial-denominated banknotes, up from just under $20 billion in the same period last year.
Timing of the OPEC+ meeting
The share sale began just before an OPEC+ meeting to discuss oil production policy. The group is expected to extend production cuts until the end of the year, keeping Saudi Arabia’s output at its lowest level in about three years. This timing aligns with strong demand for new stock offerings in Saudi Arabia, where recent IPOs have attracted a total of $176 billion in orders.
Manage the sale
A consortium of banks is in charge of the sale. M. Klein & Co. and Moelis & Co. act as independent financial advisors, with SNB Capital as lead manager. Other global coordinators include Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley. Other bookrunners include Al Rajhi Capital, BOC International, BNP Paribas SA, China International Capital Corp., EFG Hermes, Riyad Capital, Saudi Fransi Capital and UBS.
Fee structure for banks
These banks also participated in the Aramco IPO, collectively earning just over $100 million. This fee is modest compared to the $60 million that Goldman and JPMorgan earned from Peloton Interactive Inc.’s $1.2 billion raise in 2019. Fees for the current share sale have not yet been disclosed, but the prospectus indicates that the bookrunners will be paid based on the total value of the offering and related expenses.
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