Saudi Arabia has sold $11.2 billion worth of shares in Saudi Aramco, less than the maximum amount the world’s largest oil company could have raised in a deal aimed at winning over international investors.
After a week-long roadshow led by CEO Amin Nasser that made stops in London and New York, Saudi Aramco said on Friday it had placed 1.55 billion shares, or 0.64 percent of the company, at SR27.25 . $7.27) each
The company, whose investor base has been dominated by domestic and Gulf investors since its blockbuster $25.6 billion IPO in 2019 on Riyadh’s Tadawul stock exchange, last week set a price range for the shares between SR26.7 and SR29.
Convincing international investors to increase their exposure to oil at a time when future demand is difficult to estimate and the sector faces environmental and governance problems has been a “tough sell,” according to people familiar with the matter .
The shares were placed at a 6 percent discount to the closing price of SR29 on the day before the deal was announced.
The sale will provide new resources for the government, which faced a $3.3 billion budget deficit in the first quarter as it struggled to meet the spending requirements of Vision 2030, Crown Prince Mohammed bin Salman’s plan to boost the economy. transform Saudi Arabia.
Attracting international demand was “the big goal this time,” said a person familiar with the process, although he noted that some institutions are not set up to trade shares listed on the Tadawul. “Even for global investors, following is still a bit off the beaten path,” they added.
Nevertheless, Saudi Aramco said the offering was fully subscribed, with institutions receiving 90 percent of the shares and private investors the rest.
In its sales pitch, the company pointed to the improved dividend yield of its 2019 offering. Saudi Aramco has pledged to pay out $124 billion this year as its main shareholder, the Saudi government, leans on the oil group to fund its ambitious plans.
“You’re looking at stocks yielding 6.5 or 7 percent, compared to around 4 percent at the original listing in 2019,” said Neil Beveridge, head of equity research at Bernstein in Hong Kong.
In addition to a pitch to Wall Street and London, Saudi Aramco also 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 offering.
One person familiar with the process said there was strong interest from Chinese energy companies to buy into the oil group.
“Investing in Saudi Aramco strengthens the strategic partnership between China and Saudi Arabia, giving Chinese investors access to the broader Middle East market,” said Xuyang Dong, a specialist on China’s energy sector at Climate Energy Finance, a Australian think tank.
Beveridge predicted that demand could also come from sovereign wealth funds in Asia. “They are looking for yields and looking at alternatives to buying U.S. Treasuries,” he said.
The investment scenario for Saudi Aramco hinges on the oil price outlook at a time of intense debate over future demand.
Some of the most optimistic oil analysts on Wall Street, including JPMorgan Chase’s Christyan Malek, believe oil prices will soon rise and enter a “super cycle” as crude supply slows while demand grows faster than expected.
But Malek is in the minority on Wall Street: every other analyst has a neutral assessment of 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 Saudi government’s growth and control of the company. “You always have the potential for the government to make decisions that are not necessarily in the interests of the minority shareholders,” he said.
Supply got an early boost when Opec, the oil cartel, announced on June 2 ahead of the roadshow that Saudi Arabia could pump an additional 1 million barrels of oil per day by the end of next year.
“That decision was strongly tied to Aramco,” said a person who worked on the offering. “You can’t sell Aramco without showing where growth could come from.”
Despite Opec’s decision and the large dividend offered, Saudi Aramco’s field encountered hurdles.
“It was the same challenge as the 2019 IPO. Aramco wants to be seen as a blue chip investment, but no one wants more oil, and Saudi Arabia is seen as an emerging market player,” said a person familiar with the matter. with the case.
Saudi Aramco’s banks painted a rosier picture, saying the reception at the company in New York was “better than expected.” One adviser acknowledged that the oil group had struggled to meet the heads of major institutional investors, but said the company had had valuable meetings with other major players.
“It doesn’t really matter who we meet as long as we win them over,” the person said. “The goal is to broaden the investor base and obtain more liquidity. We will certainly realize that.”