Saudi Arabia moves closer to another Aramco stock offering

Saudi Arabia’s plans for another multibillion-dollar offering of Aramco stock are gaining fresh momentum, with any deal set to be one of world’s largest share sales in recent years, people with knowledge of the matter said.

The kingdom has been working with several advisers to study the feasibility of a follow-on offering on the Riyadh exchange, according to the people, who asked not to be identified because the information is private. It could make a decision as soon as the coming weeks about whether to proceed, they said.

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Saudi Arabia’s Crown Prince Mohammed bin Salman said in January 2021 that the government would look to sell more shares in the state oil giant in the future, with proceeds transferred to the kingdom’s sovereign wealth fund. The Aramco offering may take place as soon as this year if the government goes ahead, though no precise timeline has been set, the people said.

Even a one percent offering would raise more than $20 billion for the kingdom as it embarks on an ambitious investment plan to diversify its local economy. The Saudi government directly owns about 90 percent of Aramco, with a further 8 percent held by its sovereign wealth fund.

Aramco fell as much as 4.7 percent on Tuesday. The stock was down 2.4 percent at 2:43 pm in Riyadh, giving the world’s largest energy company a market value of roughly $2.1 trillion. It shares have outperformed Western oil giants such as Exxon Mobil Corp. this year.

Dividend boost

No final decisions have been made on the exact size of the potential deal, and the kingdom could decide not to proceed if market conditions aren’t favorable, the people said. A representative for Aramco declined to comment.

A secondary offering of Aramco shares may attract new investors after the company boosted its base dividend in March and said in May that it would also make more payments to shareholders from excess free cash. Aramco has come under pressure from shareholders to pay more and improve its attractiveness relative to rivals such as BP Plc and Shell Plc, which have been shelling out billions through dividends and buybacks.

The additional returns may boost Aramco’s shareholder payouts, already the largest in the world, by as much as $20 billion this year, according to analyst estimates. That may help entice new global investors to participate in an offering.

Listing slowdown

Many had balked at the Saudi government’s valuation expectations and Aramco’s low yield compared with industry peers during the firm’s 2019 initial public offering. Aramco raised almost $30 billion from its IPO, the largest ever, despite relying almost entirely on local investors.

Oil prices have dipped sharply since the middle of last year after the global economy weakened and central banks raised interest rates to combat inflation. Saudi Arabia announced a surprise oil output cut in April along with other members of the OPEC+ alliance in a move Riyadh described as “precautionary measure aimed at supporting the stability of the oil market.”

Saudi Arabia, typically one of the Gulf’s busiest listing markets, has been quiet so far this year while other exchanges like Abu Dhabi have stepped into the limelight. Aramco has pushed back a planned Riyadh initial public offering of its energy-trading business, Bloomberg News reported earlier this month.

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