Saudi Aramco’s $12 billion stock sale was snapped up soon after trading began on Sunday, a boon to a government seeking funds to help pay for a massive economic transformation plan.
The government placed demand for all shares on offer within hours of the market opening, according to terms of the deal seen by Bloomberg News. The price of books ranges from QR 26.70 to QR 29.
While it was unclear how much demand came from overseas, orders reflected a mix of local and foreign investors, three people familiar with the matter said.
The level of foreign participation will be closely watched as an indicator of interest in Saudi assets. During Saudi Aramco’s 2019 initial public offering, overseas investors largely balked at valuation expectations, leaving the government dependent on local buyers. The $29.4 billion listing attracted $106 billion worth of orders, with about 23% of the shares allocated to foreign buyers.
The biggest selling point of the latest offer is the chance to win one of the biggest bonuses in the world. Investors willing to overlook lofty valuations and a lack of buybacks will benefit from a $124 billion annual payout, which Bloomberg Intelligence estimates will give the company a 6.6% dividend yield.
The government launched the deal on the same day OPEC+ gathered to discuss oil output policy. The group agreed to extend production cuts until 2025 while phasing out some production cuts starting later this year. This would allow Saudi Arabia to relax production restrictions on Aramco.
Saudi Aramco shares fell 1.9% on Sunday, valuing the company at about $1.8 trillion. The stock has fallen about 14% since Bloomberg News first reported the government’s interest in selling the stake earlier this year and is currently trading at its lowest level in more than a year.
The Saudi Arabian government owns approximately 82% of Aramco, while the Saudi Arabian Wealth Fund also holds a 16% stake. The issuance has been years in the making and the Kingdom will remain a major shareholder.
Crown Prince Mohammed bin Salman said in 2021 that the government would seek to sell more Aramco shares in the future. The plans gained momentum a year ago, when the kingdom began working with consultants to study the feasibility of follow-on offers.
The deal is one of the world’s largest stock transactions since Aramco’s listing. Proceeds will be used to fund economic diversification measures as Saudi Arabia develops projects such as artificial intelligence, sports, tourism and Neom.
The proposal bolsters Saudi Arabia’s efforts to raise cash to plug its budget deficit. International bond sales have brought in $17 billion this year, more than other emerging market sovereign bonds, data compiled by Bloomberg show. The government also sold $25.5 billion worth of rial notes domestically, up from nearly $20 billion in the same period a year ago.
The deal comes at a time of strong demand for new share sales in Saudi Arabia. Order books for initial public offerings from four companies have totaled $176 billion in recent weeks as fund managers have piled into deals that have offered near-guaranteed returns over the past two years.
The government is working with several banks on the sale. M. Klein & Co., along with Moelis & Co., are acting as independent financial advisors.
SNB Capital is acting as lead manager. It also serves as joint global coordinator with Citigroup, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley. Al Rajhi Capital, BOCI, BNP Paribas, China International Capital Corporation, EFG Hermes, Riyad Capital, Saudi Fransi Capital and UBS were the bookrunners on the transaction.
Some of these banks also participated in Saudi Aramco’s initial public offering, when they were paid just over $100 million for their work. These relatively small fees are common in the area. By comparison, banks including Goldman Sachs and JPMorgan Chase & Co. received about $60 million from the $1.2 billion it helped Peloton Interactive Inc. raise in 2019.
The government has not yet specified how much banks will net from the latest transactions. Instead, the prospectus said Saudi Arabia will pay the bookrunner a fee based on the total value of the offering as well as fees related to the share sale.
Saudi Arabia plans to sell a total of 1.545 billion shares, accounting for 0.64% of the shares. An additional $1.2 billion could be raised if the government exercises its option to sell more shares in the offering.
