RIYADH: Saudi Aramco’s US$12bil share sale sold out shortly after the deal opened on Sunday, in a boon to the government that’s seeking funds to help pay for a massive economic transformation plan.
The government had demand for all shares on offer in a few hours after books opened, according to terms of the deal seen by Bloomberg News.
The books were covered within the price range of 26.70 riyals to 29 riyals.
While it wasn’t immediately clear how much of the demand came from overseas, the order book reflected a mix of local and foreign investors, three people familiar with the matter said, declining to be identified as the information is private.
The extent of foreign participation will be closely watched as an indicator of interest in Saudi assets. During Aramco’s 2019 initial public offering (IPO), overseas investors had largely balked at valuation expectations and left the government reliant on local buyers.
The US$29.4bil listing drew orders worth US$106bil, and about 23% of shares were allocated to foreign buyers.
A top selling point of the latest offer was the chance to reap one of the world’s biggest dividends. Investors willing to look past a steep valuation and the lack of buybacks are to cash in on a US$124bil annual payout that Bloomberg Intelligence estimates will give the company a dividend yield of 6.6%.
The government kicked off the deal the same day that the Organisation of the Petroleum Exporting Countries and its allies gathered to discuss oil output policy.
The group agreed to extend its production cuts into 2025, while winding down some of those curbs from later this year.
That would allow Saudi Arabia to relax output restrictions on Aramco.
Aramco shares fell 1.9% on Sunday, valuing the company at about US$1.8 trillion. The stock has dropped about 14% since the start of this year, when Bloomberg News first reported the government’s intention to offload a stake, and was trading at its lowest levels in over a year.
The Saudi government owns about 82% of Aramco, while the kingdom’s wealth fund holds a further 16% stake.
The kingdom will continue to be the main shareholder after the offering, which has been in the works for years.
Crown Prince Mohammed bin Salman said in 2021 that the government would look to sell more Aramco shares in the future.
Those plans gained momentum a year ago, when the kingdom began working with advisers to study the feasibility of a follow-on offer.
The deal ranks among the largest share sales globally since Aramco’s listing. Proceeds will help fund initiatives to diversify the economy as the kingdom pushes into artificial intelligence, sports, tourism and projects such as Neom.
The offer adds to Saudi Arabia’s efforts to raise cash to fill a budget deficit.
International debt sales this year have brought in US$17bil, more than any other emerging market sovereign.
The government has also sold US$25.5bil of riyal notes domestically, up from just under US$20bil during the same period a year ago.
In recent weeks, four firms drew a combined US$176bil in orders for their IPOs as fund managers flocked to deals that have offered near-guaranteed returns over the last two years.
The government is working with a string of banks on the sale. M. Klein & Co is as an independent financial adviser, alongside Moelis & Co.
SNB Capital is serving as lead manager. It’s also a joint global coordinator along with Citigroup Inc, Goldman Sachs Group Inc, HSBC Holdings Plc, JPMorgan Chase & Co, Bank of America Corp and Morgan Stanley.
Al Rajhi Capital, BOC International, BNP Paribas SA, China International Capital Corp, EFG Hermes, Riyad Capital, Saudi Fransi Capital and UBS are book-runners on the deal.
Some of these banks also worked on Aramco’s IPO, when they were paid just over US$100mil for their services. Those relatively small fees are common in the region.
In comparison, banks including Goldman and JPMorgan split about US$60mil from helping Peloton Interactive Inc raise just US$1.2bil in 2019.
The Saudi government hasn’t yet specified how much banks will net from the latest deal.
Instead, the prospectus said the kingdom will pay fees to the book-runners based on the total value of the offering as well as expenses tied to the share sale.
In all, Saudi Arabia plans to sell 1.545 billion shares, representing a 0.64% stake. — Bloomberg
