Saudi Arabia is expected to announce a landmark secondary share offering in the state-owned oil giant Aramco later on Thursday, pending final approval, according to people familiar with the matter.
The share offering is anticipated to be launched on Sunday, subject to the final approval of Crown Prince Mohammed bin Salman, the sources said.
This offering marks the culmination of years-long efforts to sell another stake in one of the world’s most valuable companies, following its record-setting initial public offering (IPO) in 2019, which raised $29.4 billion.
Sources informed Reuters last week that the offering could take place as soon as June, with one source suggesting it could raise around $10 billion.
Since the IPO, Aramco has continued to be a significant cash generator for the Saudi government, providing funds for its ambitious economic diversification drive aimed at reducing the country’s reliance on oil, as once described by the crown prince as an “oil addiction.”
In 2023, Aramco bolstered its dividends to almost $98 billion, up from the $75 billion it had been paying annually, despite a nearly 25% drop in profits. The company expects an outlay of $124.3 billion this year.
Aramco has also invested in refineries and petrochemical projects in China and other regions, expanded its retail and trading businesses, and sharpened its focus on gas, making its first foray into liquefied natural gas abroad last year.
Major banks, including Citi, Goldman Sachs, and HSBC, are managing the sale, as previously reported by Reuters.
Saudi Arabia’s de facto ruler, Crown Prince Mohammed bin Salman (MbS), has poured hundreds of billions of dollars through the kingdom’s sovereign wealth fund into mega projects and various sectors, such as electric vehicles, sports, and a new airline, in an effort to diversify the economy away from hydrocarbons and create jobs.
However, lower oil prices and production weighed on economic growth last year, while spending increased, leading to a fiscal deficit of around 2% of GDP, with a similar deficit expected this year.
Aramco introduced a special performance-based dividend last year, providing cash to the kingdom and helping to attract new investors. It offered $31 billion in dividends for the first quarter, a 59% increase from the first three months of 2023, despite a 14% decline in profit during the same period.
The company has also signed up more banks as market-makers to help improve liquidity in its shares.
Aramco trades at a higher price-to-earnings ratio than other global oil companies, including ExxonMobil, BP, and Shell. While Aramco’s stock is down 11% this year, shares of ExxonMobil and BP are up 11% and 14%, respectively.
As the de facto leader of the Organisation of the Petroleum Exporting Countries (OPEC), Saudi Arabia plays a significant role in influencing global oil market prices.
Aramco currently produces about 9 million barrels of crude oil per day, approximately three-quarters of its maximum capacity, to comply with the output cuts agreed upon by OPEC and its allies, known as OPEC+.
OPEC+ is set to decide its next production policies on Sunday, and several sources and analysts expect the meeting to roll over the existing cuts into the second half of 2024. Should OPEC+ surprise the market and cut production further, oil prices could rise from the current level of around $83, but Aramco would have to reduce output and face even lower revenue.