A $12 billion sale of Saudi Aramco shares sold out shortly after the deal opened on Sunday, a boon for the government as it seeks funds to pay for a sweeping economic turnaround plan.
According to terms of the deal seen by Bloomberg News, the government had demand for all the shares on offer within hours of the books opening. The books were sold in a price range of 26.70 to 29 riyals.
While it was not immediately clear how much of the demand came from overseas, the order book reflected both local and foreign investors, said three people familiar with the matter, who asked not to be identified because the information is private.
The degree of foreign participation will be closely monitored as an indicator of interest in Saudi assets. During Aramco’s 2019 initial public offering, foreign investors largely missed valuation expectations and left the government dependent on local buyers. The $29.4 billion listing attracted $106 billion in orders and about 23% of the shares went to foreign buyers.
The main advantage of the latest offer is the opportunity to get one of biggest dividends in the world. Investors willing to look past the high valuation and lack of buybacks will be able to cash in on the $124 billion in annual payouts, which Bloomberg Intelligence estimates will give the company a dividend yield of 6.6%.
Government started a deal on the same day that OPEC+ met to discuss oil production policy. The group agreed to extend production cuts until 2025, while clotting some of these borders released later in the year. This will allow Saudi Arabia to ease restrictions on oil production for Aramco.
Aramco shares fell 1.9% on Sunday, valuing the company at about $1.8 trillion. The stock is down about 14% since the beginning of this year, when Bloomberg News first reported the government’s intention to sell its stake, and is currently trading at its lowest levels for more than a year.
The Saudi government owns about 82% of Aramco, while the kingdom’s wealth fund owns another 16%. The Kingdom will continue to be a major shareholder after the share placement, which has been in the works for many years.
In 2021, Crown Prince Mohammed bin Salman said the government would try to sell more Aramco shares in the future. The plans received a boost a year ago when the kingdom began working with advisers to study the feasibility of a follow-up proposal.
The deal is included in largest stock sale in the world since Aramco’s listing. Proceeds will help fund economic diversification initiatives as the kingdom promotes artificial intelligence, sports, tourism and projects such as Neom.
The proposal complements Saudi Arabia’s efforts to raise cash to cover its budget deficit. International debt sales have brought in $17 billion this year, more than any other emerging market sovereign market, according to Bloomberg. The government also sold $25.5 billion worth of notes domestically, up from just under $20 billion in the same period a year ago.
The deal coincides with a period of high demand for the sale of new shares in Saudi Arabia. In recent weeks, four firms have attracted cumulative orders worth $176 billion. for their initial public offerings as fund managers flocked to deals that offered almost guaranteed profits over the past two years.
The government is working with a number of banks on the sale. M. Klein & Co. is an independent financial advisor along with Moelis & Co.
SNB Capital acts as lead manager. He is also a joint global coordinator with Citigroup Inc., Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley. The bookrunners for the deal are Al Rajhi Capital, BOC International, BNP Paribas SA, China International Capital Corp., EFG Hermes, Riyad Capital, Saudi Fransi Capital and UBS.
Some of these banks also participated in Aramco’s IPO, where they were paid just over $100 million for their work. These relatively small gatherings are common in the region. By comparison, banks including Goldman and JPMorgan received about $60 million from the Peloton Interactive Inc. bailout. in raising just $1.2 billion in 2019.
The government has not yet specified how much banks will receive from the latest deal. Instead, the prospectus says the kingdom will pay bookrunners compensation based on the total price of the offering as well as the costs associated with selling the shares.
In total, Saudi Arabia plans to sell 1.545 billion shares, representing a 0.64% stake. The government could raise an additional $1.2 billion if it exercises an option to sell more shares in the offering.