A new share offering offers a cash injection towards Vision 2030 in the face of stagnating oil revenues, and budget deficits, writes Bachar Halabi
Riyadh's long-awaited decision to launch a secondary public offering of shares in state-controlled Saudi Aramco could raise up to $13bn for the government's economic diversification plans, at a time when the Opec linchpin's oil production policy is struggling to boost revenues.
Aramco plans to sell 1.545bn shares, equivalent to about 0.64pc of the company, in an offering due to kick off on 2 June. The shares are expected to be priced in a range of 26.70-29 riyals ($7.12-7.73) each, which means the firm could raise $12bn at the top end. Proceeds could be as high as $13.1bn if Aramco chooses to exercise an over-allotment option, which would allow the sale of around 1.7bn shares. Aramco's closing share price on 30 May was SR29.
Aramco chief executive Amin Nasser said the offering is not only to provide funds to the Saudi state but also to broaden the company's shareholder base among local and international investors. "It also offers us an opportunity to further increase liquidity and to increase global index weighting," he said. Whether further offerings follow in the future will be up to the government.
The second offering has already been years in the making. Aramco's record-breaking initial public offering (IPO) in December 2019 raised $29.4bn. The company's mettle — and security risk exposure — was tested just a few months before that event, with an attack on its key Abqaiq oil processing facilities. And the years since the IPO have been a roller coaster ride of risk and opportunity for the oil sector, from the Covid oil demand slump to heightened energy security concerns spurred by Russia's invasion of Ukraine, and the subsequent bifurcation of oil markets under G7 embargoes and price caps on Russian oil.
Saudi Arabia — through Aramco — has carried the heaviest load in terms of production cuts by the strengthened Opec+ producer group that emerged from the Covid shock, with individual voluntary reductions alongside group-wide output cuts. And Aramco's secondary offering will test international investment appetite for fossil fuels in the face of growing concerns over global climate targets.
Nasser highlights key performance-related reasons that may ensure Aramco is an attractive investment opportunity. The world's largest oil company offers a long-term competitive advantage, in the face of an uncertain oil demand outlook, thanks to the scale, cost efficiency and low carbon intensity of its upstream oil production. Alongside these factors, Aramco claims differentiated growth opportunities in upstream gas, downstream oil, carbon capture, hydrogen and renewables, underpinned by its record planned capital expenditure of $48bn-58bn/yr.
Record dividends
But most appealing to potential investors may be Aramco's dividend distribution policy. "We distributed a record $98bn in 2023 and we anticipate distributing over $124bn of dividends in 2024. This would represent an almost 30pc increase from 2023," Nasser said. But the higher figure includes a performance-related dividend, reflecting the record profits it made in 2022-23. Whether its financial performance can sustain that additional payout is in question.
Proceeds from the offering will help fund Saudi Arabia's Vision 2030 initiative, a government programme of economic, social and cultural diversification that includes hundreds of billions of dollars of investment in giant civil projects. Saudi Arabia recorded a sixth straight quarterly budget deficit in January-March this year as spending outpaced revenue on the back of lower energy prices and curbs on its crude production. The launch of the secondary offering on 2 June coincides with an Opec+ ministers' meeting to decide whether to extend the group's current voluntary crude supply cuts into the second half of the year.
