Saudi Arabia is set to raise more than $11.2 billion from a secondary public share offering in its state-controlled oil giant, Aramco, after pricing the stock at the lower end of its expected range.
On Friday, Aramco announced it would price the 1.545 billion shares on offer at 27.25 Saudi riyal ($7.27) per share, with the sale expected to commence when markets open on Sunday. This price is within the initially floated range of 26.70 to 29 Saudi riyals per share but is nearly 4% below the public stock’s last settlement on the Tadāwul Saudi stock exchange.
Since the announcement of its secondary offering on May 30, Aramco’s shares have dropped by over 2%. Investors often anticipate a discounted price when new shares are introduced to the public market due to the increased supply of stock available for trading.
The pricing decision comes amid pressure on global oil prices, which have been affected by an uncertain demand outlook despite the typical seasonal rise in gasoline consumption over the summer. The Organization of the Petroleum Exporting Countries and its allies also announced on June 2 that they were extending formal and voluntary supply cuts.
Despite these challenges, interest in Aramco’s latest offering remains strong. Reuters reported that the offering was covered four to five times and generated more international demand than Aramco’s groundbreaking IPO in 2019, which raised $29.4 billion. This report, however, has not been independently confirmed by CNBC.
Aramco, a cornerstone of Riyadh’s economy, has traditionally attracted investors with its significant dividend payouts. As of June 7, it was offering a dividend yield of 6.81%, according to Factset data, compared to 3.33% from U.S. energy titan Exxon Mobil and 4.18% from Chevron.
The Saudi government is the largest shareholder in Aramco, holding over 82% of the company, while the kingdom’s sovereign wealth fund, the Public Investment Fund, holds 16%.
The proceeds from this latest stock sale will support the Saudi government, which is funding several high-cost infrastructure “gigaprojects” under its Vision 2030 economic diversification program. The kingdom has already raised $12 billion in a three-tranche bond sale.
Vision 2030, a flagship policy of Crown Prince and de facto leader Mohammed bin Salman, aims to reduce Saudi Arabia’s dependence on oil revenues. However, the program comes with a hefty price tag. For instance, the futuristic city of Neom, one of the gigaprojects under Vision 2030, is estimated to cost approximately $500 billion.
