Saudi Arabia has sold shares in Saudi Aramco for $11.2 billion, outside the maximum amount the world’s largest oil company could have received in a deal aimed at attracting international investors.
After a week-long roadshow led by CEO Amin Nasser that stopped in London and New York, Saudi Aramco said Friday it had placed 1.55 billion shares, or 0.64 percent of the company, at a price of SR27.25 ( $7.27 for each
The company, whose investor base has been dominated by domestic and Gulf investors since its $25.6 billion initial public offering in 2019 on the Tadawul exchange in Riyadh, set a price range of between SR26.7 and SR29 last week.
Convincing international investors to increase their exposure to oil at a time when future demand is hard to predict and the industry faces environmental and governance concerns has been “difficult,” according to people familiar with the matter.
The stock was placed at a 6 percent discount to its closing price of SR29 the day before the deal was announced.
The sale raises new funds for the government, which ran a budget deficit of $3.3 billion in the first quarter as it struggled to meet the spending requirements of Vision 2030, Crown Prince Mohammed bin Salman’s plan to transform the Saudi economy.
Attracting international demand was “a big goal this time,” said one person familiar with the process, although he noted that some institutions were not set up to trade Tadawul-listed stocks. track,” they added.
However, Saudi Aramco said the offer was fully subscribed, with institutions receiving 90 percent of the shares and retail investors taking the rest.
In its sales presentation, the company pointed to an improved dividend yield from the 2019 offering. Saudi Aramco has promised to pay out $124 billion this year as its major shareholder, the Saudi government, leans on the oil group to fund its ambitious plans.
“You’re looking at a stock yielding 6.5 percent or 7 percent, which compares to around 4 percent during the original listing in 2019,” said Neil Beveridge, head of equity research at Bernstein in Hong Kong.
In addition to presentations on Wall Street and London, Saudi Aramco focused on investors in Asia. Last Sunday, it added two Chinese banks, Bank of China International and China International Capital Corporation, to the list of institutions working on the offer.
One person familiar with the process said there was strong interest from Chinese energy companies to buy the oil group.
“The investment in Saudi Aramco strengthens the strategic partnership between China and Saudi Arabia and gives Chinese investors access to the wider Middle East market,” said Xuyang Dong, a Chinese energy sector specialist at Climate Energy Finance, an Australian think tank.
Beveridge predicted demand could also come from sovereign wealth funds in Asia. “They’re looking for yield and they’re looking for alternatives to buying US Treasuries,” he said.
The investment case for Saudi Aramco hinges on the oil price outlook at a time of fierce debate over future demand.
Some of Wall Street’s most bullish oil analysts, including Christyan Malek of JPMorgan Chase, believe the price of oil will soon rise and enter a “supercycle” as oil supply slows while demand grows stronger than expected.
But Malek is in the minority on Wall Street: every other analyst has a neutral rating on the company.
“Aramco has the highest quality assets, its return on invested capital is two to three times that of Western oil companies,” said Allen Good, an analyst at Morningstar. But he said there were concerns about the company’s growth and control by the Saudi government. “You always have the opportunity for the government to make decisions that are not necessarily in the interest of the minority shareholders,” he said.
The supply soon rose when Opec, the oil cartel, announced on June 2 ahead of a roadshow that it would allow Saudi Arabia to pump an additional 1 million barrels of oil per day by the end of next year.
“This decision was very much tied to Aramco,” said one person working on the bid. “You can’t sell Aramco without showing where it can grow from.”
Despite OPEC’s decision and the large dividend on offer, Saudi Aramco’s pitch has faced obstacles.
“It was the same challenge as the 2019 IPO. Aramco wants to be seen as a blue-chip investment, but nobody wants more oil and Saudi Arabia is seen as an emerging markets play,” said one person familiar with the matter.
Saudi Aramco’s banks painted a rosier picture, saying the company’s reception in New York was “better than expected.” One adviser admitted the oil group had difficulty meeting the heads of big institutional investors, but said the company had held valuable meetings with other big players.
“It doesn’t matter who we meet as long as we get them,” the person said. “The goal is to expand the investor base and get more liquidity. We are definitely doing well.”