Saudi Arabia’s government on Thursday filed papers to sell a new stake in state oil giant Aramco that could raise as much as $13.1 billion, a landmark deal that could help fund Crown Prince Mohammed bin Salman’s plan to diversify the economy. In the main part of the deal, Saudi Arabia could raise $12 billion by offering about 1.545 billion Aramco shares, equivalent to about 0.64% of the company, if it prices the sale at the top end of a 26.7 ($7.12) to 29 riyals range, according to a filing.
In a so-called greenshoe option, however, it could sell nearly 1.7 billion shares, or a 0.7% stake, which would raise the deal’s value to $13.1 billion at the top end. The share offering on Riyadh’s Saudi Exchange is the culmination of a years-long effort to sell another chunk in one of the world’s most valuable companies after its record-setting IPO in 2019 raised $29.4 billion.
Sources told Reuters last week the offering could happen as soon as June. Since the IPO, Aramco has remained a cash cow for the Saudi government, financing a mammoth economic drive to end the kingdom’s “oil addiction,” as the crown prince once called it.
The latest deal will allow the kingdom to finance large domestic projects tied to that agenda, said Hasan Alhasan, senior fellow at the International Institute for Strategic Studies. Having missed its target for foreign direct investment and with a budget deficit of up to $21 billion in sight, “the kingdom is resorting to the sale of equity in Aramco and to debt issuances,” he said.
Diversification Drive
Saudi Arabia’s de-facto ruler MbS, as the crown prince is known, has poured hundreds of billions of dollars through the kingdom’s sovereign wealth fund into mega projects, and everything from electric vehicles to sports and a new airline, to diversify the economy away from hydrocarbons and create jobs.
But lower oil prices and production weighed on economic growth last year while spending rose, leading to a fiscal deficit of around 2% of GDP, with a similar deficit expected this year. Aramco introduced a special performance-based dividend last year, providing cash to the kingdom and helping to lure new investors. It offered $31 billion in dividends for the first quarter, a 59% boost from the first three months of 2023 even as profit declined 14% in the same period.
The company has also signed up more banks as market-makers to help improve liquidity in the shares. The world’s biggest oil exporter trades at a higher price-to-earnings ratio than other global oil companies, including ExxonMobil, BP and Shell. The stock is down about 12% this year, while shares of ExxonMobil and BP are up around 14% and 4% respectively.
Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries, helping engineer price moves on world oil markets. Aramco currently produces about 9 million barrels of crude a day, about three quarters of its maximum capacity, to comply with output cuts agreed by OPEC and its allies, known as OPEC+. OPEC+ is set to decide its next production policies on Sunday, and several sources and analysts expect the meeting to roll over existing cuts into the second half of 2024.
Should OPEC+ surprise the market and cut production further, oil prices could rise from the current roughly $82 a barrel, but Aramco would have to reduce output and face even lower revenues.
