Saudi Aramco prices stock offer at low end of range in $11.2bn sale


Saudi Arabia has sold $11.2bn of shares in Saudi Aramco, short of the maximum sum the world’s largest oil company could have raised in a deal that was designed to win over international investors.

After a week-long roadshow, led by chief executive Amin Nasser, that took in stops in London and New York, Saudi Aramco said on Friday that it had placed 1.55bn shares, or 0.64 per cent of the company, at SR27.25 ($7.27) apiece.

Two people involved in the offering said there had been over $60bn of orders for the shares, and that 60 per cent of the allocation would go to investors outside Saudi Arabia.

“The goal was to broaden the international investor base and it achieved that,” said one of the people, adding that over 120 new investors were buying into Aramco, including institutions in the US, UK, Hong Kong and Japan. 

The company, whose investor base has been dominated by domestic and Gulf investors since its blockbuster $25.6bn initial public offering in 2019 on Riyadh’s Tadawul exchange, last week set out a price range of between SR26.7 and SR29 for the shares.

Persuading international investors to increase their exposure to oil at a time when future demand is hard to gauge and the industry faces environmental and governance concerns had been a “hard sell”, according to people familiar with the matter.

The shares were placed at a 6 per cent discount to the closing price of SR29 on the day before the deal was announced.

The sale raises new funds for the government, which ran a budget deficit of $3.3bn in the first quarter as it struggled to meet the spending demands of Vision 2030, Crown Prince Mohammed bin Salman’s plan to transform Saudi Arabia’s economy.

Saudi Aramco chief Amin Nasser at a conference in Riyadh in 2022
Saudi Aramco chief Amin Nasser, centre, had led a week-long roadshow seeking to persuade international investors to increase their exposure to oil © Tasneem Alsultan/Bloomberg

Attracting international demand was “the big objective this time”, said one person familiar with the process, though they noted that some institutions were not set up to trade shares listed on the Tadawul. “Even for global investors, it’s still a bit off the beaten track,” they added.

Nevertheless, Saudi Aramco said the offering was fully subscribed, with institutions receiving 90 per cent of the shares, and retail investors taking the rest.  

In its sales pitch, the company pointed to its improved dividend yield from its 2019 offering. Saudi Aramco has promised to pay out $124bn this year as its main shareholder, the Saudi government, leans on the oil group to fund its ambitious plans. 

“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,” said Neil Beveridge, head of equity research for Bernstein in Hong Kong. 

As well as pitching to Wall Street and London, Saudi Aramco targeted 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 had been strong interest from Chinese energy companies in buying into the oil group.

“Investing in Saudi Aramco strengthens the strategic partnership between China and Saudi Arabia, allowing Chinese investors to access the broader Middle Eastern market,” said Xuyang Dong, a specialist on China’s energy sector at Climate Energy Finance, an Australian think-tank.

Beveridge predicted that demand might also have come from sovereign wealth funds in Asia. “They are looking for yields and looking at alternatives to buying US Treasuries,” he said.

The investment case for Saudi Aramco hinges on the outlook for the oil price at a moment of fierce debate over future demand.

Some of the most bullish oil analysts on Wall Street, including Christyan Malek at JPMorgan Chase, believe the oil price will soon surge, entering a “supercycle” as the supply of crude slows down while demand grows more strongly than expected.

But Malek is in a 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 or three times what you get for western oil companies,” said Allen Good, an analyst at Morningstar. But he said there were concerns over growth and the Saudi government’s control of the company. “You always have the potential for the government to make decisions that are not necessarily in the minority shareholders’ interest,” he said.

The offering enjoyed an early boost when Opec, the oil cartel, announced on June 2 ahead of the roadshow that it would allow Saudi Arabia to pump an additional 1mn barrels of oil a day by the end of next year.

“That decision was very much tied to Aramco,” said one person working on the offering. “You cannot sell Aramco without showing where growth might come from.”

Despite the Opec decision and the large dividend on offer, Saudi Aramco’s pitch faced hurdles.

“It was the same challenge as during 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 markets play,” said one person familiar with the matter.

Saudi Aramco’s banks painted a rosier picture, saying the reception to the company in New York had been “better than expected”. One adviser acknowledged that the oil group had struggled to meet the heads of large institutional investors but said the company had held valuable meetings with other big players.

“It doesn’t really matter who we are meeting as long as we win them over,” the person said. “The goal is to broaden the investor base and get more liquidity. We are definitely achieving that.”



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