Saudi Aramco, the oil colossus, is in the process of engaging heavyweight financial institutions such as Citigroup Inc., Goldman Sachs Group Inc., and HSBC Holdings Plc for a substantial secondary share offering. This transaction is poised to generate approximately $20 billion, placing it among the most significant deals of recent times, according to sources with knowledge of the situation.
As Saudi Arabia’s principal oil producer seeks to assemble a team of advisers, discussions are underway with additional banks. These initial plans could see the light of day in the coming weeks, though the sources, who preferred to remain anonymous, indicated that the details regarding the timing and the scale of the share sale are not yet set in stone, leaving room for potential postponements.
While the advisory lineup is subject to change, the prospective return of these Wall Street titans to Aramco’s fold is notable, particularly in light of the minimal fees they earned in the 2019 initial public offering. Their renewed involvement reflects not just the significance of the follow-on offer but may also bolster their standing in Saudi Arabia as the nation pursues sweeping economic diversification under Crown Prince Mohammed bin Salman’s vision.
The hurdle facing any new share sale by Aramco is the necessity to draw in fresh investors, given that the company’s previous public offering saw lukewarm interest from international institutions, who were skeptical of the firm’s valuation and comparatively low yields. As a result, the IPO was largely supported by domestic retail investors and affluent Saudi families.
In efforts to enhance investor appeal and market liquidity, Aramco, currently valued at a staggering $2 trillion, has implemented a new dividend mechanism. Despite this, it still falls behind its peers in certain financial metrics. For instance, Aramco’s price-to-earnings ratio exceeds those of other industry stalwarts like Shell Plc, BP Plc, and Exxon Mobil Corp.
Nonetheless, Aramco has managed to secure investments from some of the globe’s premier asset managers, partly due to its significant presence in the Saudi stock market index.
Demonstrating the scale of Aramco’s financial prowess, the company amassed about $30 billion in what is hailed as the largest IPO in history, distributing just over $100 million in fees. By contrast, other major IPOs, such as Peloton Interactive Inc. and Alibaba Group Holding Ltd., saw banks earning $60 million for a $1.2 billion raise and $300 million for a $25 billion raise, respectively.
Advisers tapped for Aramco’s upcoming transaction may face the prospect of comparatively modest fees, which is a common scenario within the region.
Further shaking the market, Aramco, with the Saudi government holding a 90% stake, recently shelved plans to increase its oil production capacity. This reversal not only prompts questions about Aramco’s projections for oil demand but also liberates funds previously earmarked for production enhancements.
The intent to divest additional Aramco shares, with the objective of funneling proceeds to the kingdom’s sovereign wealth fund, was previously voiced by the crown prince known as MBS. Momentum for these plans was building, as reported last year.