Saudi Arabia’s ambitious sale of shares in oil giant Aramco drew more demand than available stock within hours of launching on Sunday. This significant deal, expected to raise up to $13.1 billion, serves as a critical test of international interest in the kingdom’s assets.
Institutional Orders and Pricing Timeline
Institutional orders for the shares will be taken through Thursday, with the share pricing scheduled for the following day. Trading is set to commence next Sunday on Riyadh’s Saudi Exchange. This offering will serve as a gauge of Riyadh’s appeal to foreign investors, a crucial component of the kingdom’s strategy to overhaul its economy, which has repeatedly fallen short of its foreign direct investment targets.
Diversification Efforts
The sale underscores efforts by the Saudi government to reduce its reliance on oil revenue, an initiative Crown Prince Mohammed bin Salman has described as moving away from “oil addiction.” Proceeds from the sale are expected to benefit the Public Investment Fund (PIF), a sovereign wealth fund central to the kingdom’s economic transformation agenda, which has invested heavily in various sectors including sports and futuristic urban developments.
Share Details and Investor Demand
On Sunday, Aramco’s shares closed approximately 2% lower at 28.45 riyals ($7.53). Saudi Arabia is offering about 1.545 billion Aramco shares, or 0.64%, priced between 26.7 and 29 riyals, totaling just under $12 billion at the higher end of the range. “Books are covered on the full deal size within the price range,” one of the banks involved in the deal informed investors.
Potential Increase in Offering
The banks managing the sale have the option to increase the offering by an additional $1 billion. If all shares are sold, the Saudi government will reduce its stake in the world’s leading oil exporter by 0.7%. Top global investment banks like Citi, Goldman Sachs, HSBC, JPMorgan, Bank of America, and Morgan Stanley, along with local firms, are managing the sale. M. Klein and Company and Moelis serve as independent financial advisers.
Role of OPEC+ and Market Context
The deal launched on the same day as the OPEC+ group of oil producers met, agreeing to extend significant oil output cuts into 2025 to stabilize the market amid weak global demand, high interest rates, and increased U.S. production. OPEC+, led by Saudi Arabia and Russia, has been reducing output by 5.86 million barrels per day (mbpd), approximately 5.7% of global demand.
Aramco’s Financial Health and Government Holdings
Despite lower profits due to reduced volumes, Aramco has increased its dividends with a new performance-linked payout mechanism introduced last year. Currently, Saudi Arabia produces about 9 mbpd of crude, about 75% of its maximum capacity. The Saudi government holds just over 82% of Aramco, while PIF owns 16%, split between direct ownership and its subsidiary, Sanabil.
The outcome of this share sale will be closely watched as an indicator of international confidence in Saudi Arabia’s economic reforms and diversification efforts.