Saudi Aramco’s latest $12 billion share offering sold out within hours of its launch on Sunday.
The rapid sellout marks a significant success for the Saudi government, which is leveraging the proceeds to support an ambitious economic transformation plan.
Strong Demand Drives Quick Sellout
According to terms seen by Bloomberg News, the demand for all shares on offer was met within a few hours after the books opened.
The shares were sold within a price range of 26.70 riyals to 29 riyals, reflecting robust interest from both local and foreign investors.
Three sources familiar with the matter, who requested anonymity, confirmed the participation of a diverse investor base.
The extent of foreign interest in the share sale will be closely scrutinized, as it serves as an indicator of global confidence in Saudi assets.
During Aramco’s 2019 initial public offering (IPO), foreign investors were hesitant, with only 23% of the $29.4 billion listing allocated to them. This time, the mix of investors suggests a potentially broader international appeal.
Appeal of High Dividends
One of the main attractions for investors is Aramco’s substantial dividend payout.
Bloomberg Intelligence estimates that the company’s $124 billion annual dividend translates to a yield of 6.6%, one of the highest among its peers.
This lucrative return is enticing for investors willing to overlook the company’s high valuation and the absence of stock buybacks.
Coinciding with OPEC+ Decisions
The share sale coincided with OPEC+ meetings, where the group agreed to extend oil production cuts into 2025 while gradually easing some restrictions starting later this year.
This decision is expected to allow Saudi Aramco to increase its output, potentially enhancing its future profitability.
Economic Transformation and Future Plans
Proceeds from the share sale are earmarked for Crown Prince Mohammed bin Salman’s Vision 2030, a plan aimed at diversifying the Saudi economy away from oil dependency.
The government is focusing on sectors such as artificial intelligence, sports, tourism, and the development of futuristic projects like Neom.
This latest offering, one of the largest share sales globally since Aramco’s IPO, underscores Saudi Arabia’s efforts to fill a budget deficit exacerbated by lower oil prices and the COVID-19 pandemic.
In addition to the share sale, the Saudi government has raised $17 billion through international debt sales and $25.5 billion through domestic riyal notes this year.
Banking on Success
The Saudi government engaged a consortium of global banks for the share sale, including Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Bank of America Corp., and Morgan Stanley. These banks also played key roles in Aramco’s 2019 IPO.
While the exact fees the banks will earn from this deal have not been disclosed, the overall compensation structure is expected to be based on the total value of the offering and related expenses.
Investor Optimism
The rapid sellout of Aramco’s $12 billion share offering highlights a period of strong demand for new share sales in Saudi Arabia.
Recently, four firms garnered a combined $176 billion in orders for their initial public offerings, attracting fund managers with the promise of near-guaranteed returns.
As Saudi Arabia continues to pursue its economic diversification goals, the successful Aramco share sale serves as a testament to the growing investor confidence in the kingdom’s financial markets and future prospects.
Leave a Comment