The recent disposition of shares by Saudi Arabia’s state-owned oil behemoth, Saudi Aramco, culminated in an $11.2 billion capital influx, though falling short of the potential maximum. The sale’s intent to captivate a global investment audience was evident in the international promotional efforts spearheaded by CEO Amin Nasser, which encompassed major financial hubs such as London and New York.
Following the promotional campaign, Saudi Aramco disclosed the successful placement of 1.55 billion shares, translating to a 0.64% stake in the enterprise, valued at SR27.25 ($7.27) each. Sources close to the transaction revealed an impressive demand, with orders surpassing $60 billion and 60% of shares allocated to foreign investors.
The goal was to broaden the international investor base and it achieved that,
remarked an insider, highlighting the addition of over 120 new investors from diverse markets including the United States, United Kingdom, Hong Kong, and Japan.
Originally, the shares were offered within a pricing band of SR26.7 to SR29, reflecting Saudi Aramco’s strategy to enhance its appeal among international investors who had previously been cautious due to uncertainties in oil demand and environmental considerations.
The shares were ultimately sold at a 6% markdown from the preceding day’s closing price. This sale assists the Saudi government in funding the budget deficit, which stood at $3.3 billion in the first quarter, amidst efforts to realize the ambitious Vision 2030 economic transformation plan spearheaded by Crown Prince Mohammed bin Salman.
Despite being somewhat off the traditional investment routes, the offering was well-received, with institutional investors acquiring the lion’s share at 90%, and the remainder going to retail investors.
Saudi Aramco’s enticement included an improved dividend promise, with plans to distribute $124 billion this year, as the government relies on the oil giant to underwrite its developmental objectives.
Neil Beveridge, a prominent equity analyst in Hong Kong, noted the appeal of the stock’s yield, You are looking at a 6.5 per cent or 7 per cent yielding stock, and that compares with around 4 per cent during the original 2019 listing.
The campaign also targeted Asian investors, with notable Chinese financial institutions joining the effort, and indications of strong interest from Chinese energy companies.
As per Xuyang Dong, an expert on Chinese energy investments, Investing in Saudi Aramco strengthens the strategic partnership between China and Saudi Arabia, allowing Chinese investors to access the broader Middle Eastern market.
The investment case for Saudi Aramco remains tightly linked to the oil price trajectory amidst a divided outlook on future demand. While some, like Christyan Malek at JPMorgan Chase, envision a looming ‘supercycle’ driven by a tightening supply and unexpectedly strong demand, such bullish perspectives are in the minority.
Despite these challenges, Saudi Aramco’s offering was bolstered by an OPEC decision to permit an additional 1 million barrels per day in Saudi oil output by the year’s end. This move was interpreted by industry insiders as a strategic effort to strengthen the investment appeal of Saudi Aramco by demonstrating growth potential.
Conclusively, the offering not only underscores Aramco’s stature as a premier investment vehicle but also reflects a concerted effort to broaden its investor base and enhance market liquidity.