Aramco ready to sell new shares: To whom and why?

#Saudi Arabia
#Dimensions of the Position

In the eighties of the last century, the Saudi government took control of the Arab Oil Company (Aramco), after it had bought out all the shares of American joint stock companies. Over time, Aramco became a global company with investments all over the world, in addition to being the main oil producer in Saudi Arabia.

In fact, the idea of offering a stake in Aramco for sale came within the framework of Prince Mohammed bin Salman's economic vision for 2030.

In late 2019, the first stake of Aramco was officially listed on the Saudi Stock Exchange (Tadawul) with 1.5% of the total shares, at a minimum value of 30 Saudi riyals per share ($8). Aramco, through its first offering, raised almost $30 billion. Saudis nationals bought 90% of the listed shares in return for 10% that went to Gulf individuals and institutions.

These data show that the first offering practically failed to achieve its main objective, which is attracting foreign investments. The IPO was supposed mainly to be listed on the New York Stock Exchange or London to target international investors. However, legal, political and financial obstacles prevented this from taking place; therefore, Aramco headed to the other option, that is to be listed on the local stock market. This, in fact, led to sucking Saudi funds from the markets and draining local savings, instead of bringing in additional funds from abroad. As for the Gulf investments, they mostly had a political dimension. The government and semi-governmental institutions that participated in the deal did not object to the high price of the stock, as set by Western companies, nor did they object to the standards of transparency and governance in Aramco.

Aramco's share is currently trading in the Saudi stock market at 37.5 Saudi riyals ($10), which means that Aramco's market value exceeds $2 billion. Moreover, with a new IPO, share prices are expected to rise, especially with the entry of foreign partners and with the business expansion policy that Aramco follows.

In the context of completing the offering of an additional 5% share, which was supposed to be in late 2020, but stopped for many reasons, (VOVID is one of them) and the developments that emerged in global energy markets; Crown Prince Mohammed bin Salman also stated during his review of the achievements of Vision 2030 in April, 2021 said they are considering selling 1% of Aramco's shares to a foreign partner, but that was not done, most likely, for political reasons.

Once global energy markets stabilize and the Covid-19 crisis started to be overcome, it is expected that Aramco will soon offer selling a stake of its total shares ranging between 2% and 3.5%, targeting a stake sale of as much as 5% of its shares. It is most likely that offering the 3.5% share will take place through two operations, the first 2% and the second with a limit of 1.5%.It is also possible that the entire deal to be offered at one time if things go well at the time of listing. The targeted stake might not be only 5%, but rather the offered shares may increase to more than that in the coming few years.

The Chinese Silk Road Fund is one of the most prominent investors who are interested in the Saudi offering. It is expected that it is the foreign partner with whom the 1% deal was negotiated earlier. This very deal that the Saudi Crown Prince spoke about in April 2021.

The Chinese Investment Fund and the Russian Investment Fund are also added to those interested in this offer. However, the Russian-Ukrainian conflict consequences may make Saudi Arabia fear negotiating with the Russian Fund because of Washington’s threats of imposing sanctions on the latter. Indian and South Korean energy companies are also interested in buying stakes in Aramco because of their practical partnership with the company. Abu Dhabi Investment Fund and the Kuwaiti Sovereign Fund are added to the interested parties as well. European and American companies may also participate as potential partners, although problems related to Aramco's transparency and governance make any dealer skeptical.

The size and timing of the offering will depend on the global and local political conditions and the stability of the global economy. Such a situation will contribute to determining Saudi Arabia’s tendencies to negotiate with foreign partners wishing to purchase part of Aramco’s expected offer shares. Saudi Arabia works mainly on securing resources and raising the market value of the company to more than $3 billion, which means more support for the activities of the Saudi Investment Fund. Saudi Arabia is also trying to build relationships and have greater networking with global markets through foreign partners, which would ensure greater stability in the Kingdom.