The news failed to boost the oil giant’s shares, which fell 1% in the premarket. Thus, the red spreads and in the last five days the score reaches almost 2%. In the last month, 3.6% and in the last six it exceeds 12%.
Although the offer represents a small fraction of Saudi Arabia’s current stakeis a key part of the kingdom’s effort to finance its ongoing and costly efforts to diversify the country’s economy away from oil.
The Wall Street Journal reported on the fundraising plan this week. Saudi Arabia faces short-term pressure to finance series of megaprojects, including a new city and a global airline. The country expanded a $12 billion debt sale earlier this year and has transferred billions of its foreign reserves to its sovereign wealth fund.
What’s behind the kingdom plan
Saudi Arabia said it plans to start marketing the issue to potential investors on Sunday and price the shares at the end of next week. The kingdom is targeting a selling price between 26.70 Saudi riyals, equivalent to $7.12, and 29 Saudi riyals for each share. At the upper end of the range, Saudi Arabia would set the offer at the current market price of the shares.
The share sale would be a secondary offering. Aramco went public in 2019, raising $29.4 billion in what remains the world’s largest initial public offering. A sale of up to $12 billion in shares would put it near the top of record stock sales, close to the size of Alibaba’s 2014 IPO.
Saudi Arabia, under the rule of the de facto leader Crown Prince Mohammed bin Salman, has considered selling additional shares in Aramco for several years, repeatedly postponing the plans due to uncertain economic and market conditions. This time, however, the country is emboldened by global stock markets trading near records and benchmark oil prices trading around $80 a barrel for several months.
The offering would be substantial for the relatively small Saudi stock market, but would only raise a fraction of the cost of the projects and initiatives the country has announced, which could total trillions of dollars if fully built.
Mohammed’s ambition for Saudi Arabia is epitomized by a planned futuristic city of nine million people, called Neom. The $500 billion project features a pair of 110-mile-long, mirror-covered buildings taller than the Empire State Building. Mohammed has also promoted the launch of a global airline and approved major investments in sports and video games.
With Saudi Arabia set to host the 2030 World Expo and emerging as a leading contender to host the 2034 FIFA World Cup, the country is betting on a new mega metro project to help transform its economy and improve its reputation.
Aramco’s steady and growing dividend payments, which look attractive compared to other global oil players, are expected to help drive demand for share sales. The energy giant offers a dividend yield of around 6.6%. That compares with 3.3% for US energy giant Exxon and 4.2% for rival Chevron.
At one point, Saudi Arabia intended to sell up to $50 billion in Aramco shares. The smaller target shows the limits facing the country’s relatively small financial system. Too large an offer risks hurting Aramco’s share price.
Aramco has a market valuation close to $1.9 trillion. That compares to a $1.7 trillion valuation after the IPO and is closer to the $2 trillion valuation favored by Mohammed.
Source: Ambito
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