Saudi Aramco’s $12 billion share sale was quickly sold out shortly after opening on Sunday, marking a significant success for the government, which aims to raise funds for a major economic transformation plan.
Demand for all available shares was met within hours after the books opened, as per the terms of the deal reviewed by Bloomberg News. The shares were covered within the price range of 26.70 to 29 riyals.
Although the extent of foreign demand was not immediately clear, the order book included a mix of local and international investors, according to three individuals familiar with the matter who requested anonymity due to the private nature of the information.
The level of foreign participation will be closely monitored as a gauge of interest in Saudi assets. In Aramco’s 2019 initial public offering, overseas investors were hesitant about the valuation, causing the government to rely more on local buyers. That $29.4 billion listing attracted $106 billion in orders, with approximately 23% of shares allocated to foreign investors.
A key attraction of the latest offering is the potential for one of the world’s largest dividends. Investors willing to overlook a steep valuation and the absence of buybacks could benefit from an estimated $124 billion annual payout, which Bloomberg Intelligence estimates will provide a 6.6% dividend yield.
The government launched the deal on the same day OPEC+ convened to discuss oil output policy. The group agreed to extend production cuts into 2025, with a phased reduction starting later this year, allowing Saudi Arabia to ease output restrictions on Aramco.
On Sunday, Aramco shares fell 1.9%, valuing the company at approximately $1.8 trillion. The stock has declined around 14% since the beginning of the year, when Bloomberg News first reported the government’s plans to sell a stake, and is now trading at its lowest levels in over a year.
The Saudi government owns about 82% of Aramco, with the kingdom’s wealth fund holding an additional 16% stake. Despite the offering, the government will remain the principal shareholder. Crown Prince Mohammed bin Salman indicated in 2021 that more Aramco shares would be sold in the future, with plans gaining momentum over the past year as the kingdom explored a follow-on offer.
The deal is among the largest global share sales since Aramco’s initial listing. The proceeds will support initiatives to diversify the economy, including investments in artificial intelligence, sports, tourism, and projects like Neom.
The share sale is part of Saudi Arabia’s strategy to generate cash to address a budget deficit. This year, international debt sales have raised $17 billion, the highest amount among emerging-market sovereigns, according to Bloomberg data. Domestically, the government has sold $25.5 billion in riyal notes, an increase from just under $20 billion during the same period last year.
The deal also aligns with a period of high demand for new share sales in Saudi Arabia. Recently, four firms attracted a combined $176 billion in orders for their initial public offerings, as fund managers were drawn to deals offering near-guaranteed returns over the past two years.
A consortium of banks is assisting with the sale, including M. Klein & Co. and Moelis & Co. as independent financial advisers. SNB Capital is the lead manager and joint global coordinator 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 also bookrunners.
These banks previously worked on Aramco’s IPO, earning just over $100 million for their efforts, a relatively modest fee compared to other regions. For instance, banks like Goldman and JPMorgan earned around $60 million for helping Peloton Interactive Inc. raise $1.2 billion in 2019.
The government has not yet disclosed how much banks will earn from the current deal. The prospectus indicates that fees will be based on the total value of the offering and related expenses.
In total, Saudi Arabia plans to sell 1.545 billion shares, representing a 0.64% stake, with the potential to raise an additional $1.2 billion if an option to sell more shares is exercised.
