Photo by Zbynek Burival via Unsplash
Saudi Arabia is on the brink of announcing a significant secondary share offering for oil giant Aramco, with the final go-ahead expected on Thursday, according to insiders. The launch is anticipated for Sunday, contingent upon Crown Prince Mohammed bin Salman’s approval.
This move represents the climax of a multi-year initiative to sell an additional stake in one of the globe’s most valuable companies. Aramco’s initial public offering in 2019 set a record by raising $29.4 billion. Sources recently indicated to Reuters that the upcoming offering could happen as early as June, potentially generating around $10 billion.
Since its IPO, Aramco has remained a substantial revenue generator for Saudi Arabia, supporting an extensive economic transformation aimed at reducing reliance on oil, a strategy often highlighted by Crown Prince Mohammed. Despite a nearly 25% drop in profit, the company increased its dividends to nearly $98 billion in 2023, up from the annual $75 billion. Aramco’s forecast for this year’s expenditure is $124.3 billion.
The oil giant diversified its investments, channeling funds into refineries and petrochemical projects in China and other regions, expanding its retail and trading operations, and venturing into the international liquefied natural gas market last year. Banks such as Citi, Goldman Sachs, and HSBC are reported to be managing the upcoming share sale.
Crown Prince Mohammed bin Salman, often referred to as MBS, has invested extensively across various sectors, from electric vehicles to sports and a new airline, through the kingdom’s sovereign wealth fund. This is part of a broader strategy to diversify the Saudi economy and generate employment.
Despite these efforts, lower oil prices and reduced production impacted economic growth last year, resulting in a fiscal deficit of approximately 2% of GDP. A similar shortfall is projected for this year.
To attract new investors and provide additional funds to the kingdom, Aramco introduced a performance-based dividend last year, distributing $31 billion in dividends for the first quarter. This marked a 59% increase from the same period in 2023, even though profits fell by 14%. The company has also enlisted more banks as market-makers to enhance share liquidity.
As one of the largest oil producers and the leading exporter globally, state-owned Aramco pumps nearly 10% of the world’s oil supply. The company is also among the most profitable in the world, generating $27.3 billion in net profit in the first quarter, surpassing the combined earnings of oil giants ExxonMobil, Shell, Chevron, and TotalEnergies for the same period. However, its stock has declined by 11% this year, while ExxonMobil and BP shares have risen by 11% and 14%, respectively.
Employing over 73,000 people in 2023, Aramco’s operations span the globe. The company has established energy industry operations, research facilities, and offices in key locations across Asia, Europe, and the Americas. Aramco maintains offices in cities including Beijing, Houston, London, New Delhi, New York, Seoul, Shanghai, Singapore, and Tokyo.
As the dominant force within the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia plays a crucial role in influencing global oil prices. Aramco currently produces around 9 million barrels of crude daily, about 75% of its maximum capacity, adhering to output cuts agreed upon by OPEC and its allies, collectively known as OPEC+.
In 2022, Aramco achieved its highest-ever annual net profit of $161.1 billion, followed by a substantial $121.3 billion in 2023, marking it as the second highest on record.
Aramco made headlines in late 2019 by raising $25.6 billion through its initial public offering, the largest in history. An over-allotment option exercised in January 2020 pushed the total IPO proceeds to $29.4 billion.