Aramco Kicks Off Giant Share Sale in Test of Investor Appetite

(Bloomberg) — Aramco on Sunday kicked off a share sale to raise about $12 billion for Saudi Arabia, one of the biggest deals in recent years that will test investor interest in the kingdom’s assets.

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Saudi Arabia is looking to attract more international shareholders after Aramco’s mega IPO five years ago turned out to be largely a local affair. Investors will need to weigh a $124 billion annual dividend payout, one of the world’s heftiest, against shares that are far more expensive than other energy supermajors. Government control and the demand outlook for oil in the face of climate change also present long-term risks.

The secondary share sale that has been years in the making comes at a crucial time for the kingdom. Crown Prince Mohammed Bin Salman is pushing ahead with a multitrillion-dollar plan to overhaul the economy and reduce its dependence on oil. But there have been challenges with crude prices below the level the government needs to balance spending and foreign direct investments lagging behind expectations.

Aramco shares fell as much as 2.24% to 28.35 riyals Sunday morning in Riyadh, their lowest levels in over a year. The government is selling 1.545 billion shares, representing a 0.64% stake, at a price range of 26.70 to 29 riyals apiece. It began taking orders Sunday and the final pricing will be decided on Friday.

The Aramco offer adds to Saudi Arabia’s efforts to raise more cash to fill a budget deficit. International debt sales so this year have brought in $17 billion, more than any other emerging-market sovereign, according to data compiled by Bloomberg. The government has also sold $25.5 billion of riyal notes domestically this year, up from just under $20 billion during the same period a year ago.

Saudi Arabia has already delayed some projects that are part of its economic transformation plan past 2030 and scaled back its ambitions for the ambitious desert project of Neom. The economy has contracted for three quarters straight while the budget has been in deficit for six consecutive quarters.

The country has also relied heavily on Aramco’s dividends, a $31 billion quarterly payout that the company has maintained despite lower oil production. It’s also the payout that may lure foreign investors.

“The offering provides us with an opportunity to broaden the shareholder base among both Saudi and international investors,” Aramco Chief Executive Officer Amin Nasser said on a conference call on Thursday. “Our commitment to shareholder returns speaks for itself.”

The Saudi government owns about 82% of the $1.9 trillion energy giant, with the kingdom’s wealth fund holding a further 16% stake. The kingdom, which will continue to own a large majority of the company, could raise an additional $1.2 billion if it exercises an option to sell more shares as part of the offering.

(Updates with shares in 4th paragraph)

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