DubaiSaudi Arabia could announce a landmark secondary initial public offering for oil giant Aramco as soon as later on Thursday, pending final approval from Crown Prince Mohammed bin Salman, people familiar with the matter said.
The initial public offering on the Saudi Stock Exchange in Riyadh is due to begin as soon as Sunday, according to sources, marking the culmination of a years-long effort to sell more shares in one of the world’s most valuable companies since it raised $29.4 billion in a record IPO in 2019.
Sources familiar with the matter told Reuters last week that the offering could happen as early as June and could raise around $10 billion.
Since its IPO, Aramco has remained a cash cow for the Saudi government, funding a massive economic package aimed at ending the country’s “oil addiction,” as the crown prince once called it.
Hasan Al-Hassan, a senior research fellow at the International Institute for Strategic Studies, said the agreement would allow the Kingdom to fund large-scale domestic projects linked to these plans.
He said that missing foreign direct investment targets and facing a projected budget deficit of up to $21 billion meant “Saudi Arabia is relying on selling Aramco shares and issuing bonds.”
“The Kingdom is likely to continue to redirect capital to other sectors, such as renewable energy, technology, tourism, logistics and manufacturing, which Riyadh hopes will be sources of long-term economic growth,” he added.
Aramco shares closed down 0.17 percent at 29.1 riyals ($7.76) on Thursday, giving the company a market capitalization of about $1.87 trillion. The IPO price valued the company at $1.7 trillion but it traded 10 percent higher at its opening price, roughly in line with its current valuation.
The company has boosted its annual dividend of $75 billion to nearly $98 billion by 2023, even as its profits fell by nearly a quarter. It expects to pay out $124.3 billion this year.
Aramco has also invested in refineries and petrochemical projects in China and other countries, expanded its retail and trading businesses and strengthened its focus on gas, entering its first overseas liquefied natural gas business last year.
Reuters previously reported that banks including Citi, Goldman Sachs and HSBC are running the sale.
Promoting Diversity
Saudi Arabia’s de facto ruler, Crown Prince MbS, is pumping hundreds of billions of dollars through the kingdom’s sovereign wealth fund into megaprojects on everything from electric cars to sports to a new airline, in an effort to diversify the economy away from hydrocarbons and create jobs.
But falling oil prices and production weighed on economic growth last year and led to higher spending, leading to a budget deficit of about 2 percent of GDP, with a similar deficit expected this year.
Aramco introduced a performance-linked special dividend last year to provide cash to the kingdom and help attract new investors. The company paid out $31 billion in dividends in the first quarter, a 59% increase from the first three months of 2023, when profits fell 14% in the same period.
The company has also signed up more banks as market makers to improve liquidity in its shares.
The world’s largest oil exporter trades at a higher price-to-earnings multiple than other global oil companies such as Exxon Mobil, BP and Shell.
The company’s shares have fallen about 12% this year, while Exxon Mobil and BP shares have risen about 4% and 14%, respectively.
Saudi Arabia is the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC) and helps control price fluctuations in global oil markets.
Aramco is currently pumping about 9 million barrels of crude oil per day, about three-quarters of its maximum capacity, in line with production cuts agreed to by OPEC and its allies (OPEC+).
OPEC+ is due to decide its next production policy on Sunday, with multiple sources and analysts expecting the meeting to extend existing cuts until late 2024.
If OPEC+ surprises the market and makes further production cuts, oil prices could rise from current levels of around $83 a barrel, but Aramco would have to cut production, further reducing its revenue.
(1 dollar = 3.7506 riyals)