Saudi Aramco’s $12 Billion Share Sale Fully Subscribed Within Hours

Saudi Aramco’s $12 billion share offering was fully subscribed within hours of its launch on Sunday. This rapid uptake underscores investor confidence in the company's prospects and Saudi Arabia's broader economic transformation agenda.

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Strong Demand for Shares

The shares, priced between 26.70 and 29 riyals, were quickly purchased by a mix of local and international investors. While specific details about the extent of foreign participation are not yet available, the quick sell-out highlights the strong demand for Aramco’s shares.

Significance of Foreign Investment

International investor participation is a critical measure of global interest in Saudi assets. During Aramco’s 2019 initial public offering (IPO), foreign investors were cautious, prompting the government to depend heavily on local buyers. That IPO raised $29.4 billion, with total orders reaching $106 billion, but only about 23% of the shares were allocated to international investors.

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Attractive Dividends

A major draw for this share sale is Aramco’s substantial dividends. Bloomberg Intelligence estimates an annual payout of $124 billion, offering a dividend yield of 6.6%. This makes Aramco's dividends particularly attractive, despite the high valuation and absence of stock buybacks.

Stock Performance

Despite the successful sale, Aramco’s stock price fell by up to 2.9% to 28.30 riyals on Sunday, giving the company a market value of around $1.8 trillion. Since the start of the year, the stock has decreased by approximately 14%, reaching its lowest point in over a year following the government’s announcement of the share sale.

Government Shareholding

The Saudi government currently holds about 82% of Aramco, with the kingdom’s wealth fund owning an additional 16%. Even after this sale, the government will remain the primary shareholder.

Future Plans for Share Sales

Crown Prince Mohammed bin Salman mentioned in 2021 that the government might sell more Aramco shares in the future. This plan gained traction last year as the kingdom started consulting advisers on another potential share offering.

Funding Economic Diversification

This share sale ranks among the largest globally since Aramco's IPO. The proceeds will fund various projects aimed at diversifying Saudi Arabia’s economy, including initiatives in artificial intelligence, sports, tourism, and the Neom mega-project.

Addressing Budget Deficit

The sale also supports Saudi Arabia’s efforts to manage its budget deficit. This year, the government has raised $17 billion through international debt sales, surpassing other emerging-market sovereigns. Domestically, it has sold $25.5 billion in riyal-denominated notes, an increase from just under $20 billion in the same period last year.

Timing with OPEC+ Meeting

The share sale began just ahead of an OPEC+ meeting to discuss oil production policy. The group is expected to extend production cuts until the end of the year, keeping Saudi Arabia’s output at its lowest level in about three years. This timing aligns with strong demand for new share offerings in Saudi Arabia, where recent IPOs have attracted a combined $176 billion in orders.

Managing the Sale

A consortium of banks is handling the sale. M. Klein & Co. and Moelis & Co. are acting as independent financial advisers, with SNB Capital serving as the lead manager. Other global coordinators include Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Bank of America Corp., and Morgan Stanley. Additional bookrunners include Al Rajhi Capital, BOC International, BNP Paribas SA, China International Capital Corp., EFG Hermes, Riyad Capital, Saudi Fransi Capital, and UBS.

Fee Structure for Banks

These banks also participated in Aramco’s IPO, collectively earning just over $100 million. This fee is modest compared to the $60 million Goldman and JPMorgan earned for Peloton Interactive Inc.’s $1.2 billion raise in 2019. The fees for the current share sale have not been disclosed yet, but the prospectus indicates that bookrunners will be paid based on the total value of the offering and related expenses.

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