Who Is Buying The $12 Billion Saudi Aramco Shares?

Saudi Aramco’s $12 billion share sale last Sunday, selling 1.545 billion shares at 26.70-29 riyals each, saw immediate success, attracting keen interest from global investors.

Who Is Buying The $12 Billion Saudi Aramco Shares? 1

In a filing with the Saudi Exchange last week, Saudi Aramco (ARMCO), the country’s largest energy corporation, announced its intention to sell shares in the state-owned oil company to raise funds for economic diversification initiatives in the kingdom. The sale, which happened on Sunday, was a huge success, with the US$12 billion in shares selling out almost immediately after it opened. The agreement provided around 1.545 billion Aramco shares, or roughly 0.64% of the business, for between 26.70 and 29 riyals. The shares will offer a healthy 6.6% dividend, according to Bloomberg Intelligence, and buyers will be hoping to profit from the anticipated ~$124 billion yearly payout.

Who Is Buying The $12 Billion Saudi Aramco Shares? 2

Industry observers will surely be anxiously awaiting the announcement in an attempt to determine international interest in Aramco’s assets, even though specifics regarding the distribution of local and foreign shareholders have not yet surfaced. The company’s 2019 initial public offering (IPO) was mainly avoided by foreign investors, who were wary of the shares’ high price. With ARMCO’s stock down 14% so far this year, the firm is valued at $1.8 trillion, and its daily production is projected to be 9.3 million barrels of oil equivalent (boe). In contrast, Exxon Mobil (NYSE: XOM), the biggest energy corporation in the United States, is valued at only 25% of Aramco ($451 billion), even though it produces more than 40% of Aramco’s daily total (3.8 million barrels of equivalent oil equivalent).

The sale of Aramco’s shares occurs as oil prices are still low, mostly as a result of worries about sluggish global demand. During Tuesday’s intraday trading, the price of Brent crude for July delivery was quoted at $77.50 a barrel, which is the same price as it was in early February. Given that the IMF projects Riyadh needs an average oil price of $96.20 per barrel to balance its budget, assuming it maintains stable crude output near 9.3 million barrels per day this year, the oil price selloff is a major setback for Saudi Arabia.

Saudi Arabia’s Non-Oil Revenue Soars

Fortunately for Saudi Arabia, the impact of low oil prices on the economy will be considerably less than it was ten years ago. The largest economy in the Arab world has been diversifying recently to protect itself against volatile fluctuations in oil prices. The Kingdom of Saudi Arabia’s plan for economic diversification, international involvement, and improved living standards, known as Saudi Vision 2030, was revealed three years ago by Crown Prince Mohammed bin Salman. The main goals of Vision 2023 are to modernize the curricula and standards of Saudi educational institutions from preschool to higher education, unlock underdeveloped industries like manufacturing, tourism, and renewable energy, and diversify Saudi Arabia’s economy by privatizing state-owned assets, including a portion of Saudi Aramco.

It seems like Saudi Arabia’s Vision 2030 is beginning to pay off: According to Saudi Arabia’s Ministry of Economy and Planning, non-oil incomes reached a record-breaking 50% of the Kingdom’s GDP in 2023.

Driven by consistent expansion in exports, investment, and consumer spending, Saudi Arabia’s non-oil economy was valued at 1.7 trillion Saudi Riyals (about 453 billion US dollars) at constant prices last year. While real service exports and investments in the arts and entertainment sectors both experienced triple-digit growth, totaling 106% and 319%, respectively, the Kingdom’s private sector investments increased by 57% to a record high of 959 billion Saudi Riyals (254 billion dollars). These figures demonstrate the Kingdom’s emergence as a major global hub for tourism and entertainment. In the meantime, the food industry in Saudi Arabia expanded by 77%, while trade, dining establishments, and lodging rose by 7%, transportation, and storage services grew by 29%, and health and education saw growth of 10.8%.

Saudi Arabia has set a target in the economic plan to create around 60 GW of renewable energy capacity by 2030, which is multiples larger than the existing capacity of 2.8 GW. But there’s no denying that Saudi Arabia has no intention of giving up on the old fossil fuel industry anytime soon. Saudi Aramco has revealed intentions to achieve net-zero energy by 2050 without compromising its output of gas and oil. The world’s largest fossil fuel firm unveiled dozens of research projects that it hopes would help it address climate change during a rare two-day visit by Fortune in early May, all the while pumping a massive 9 million barrels of oil per day. According to Aramco, its technological advancements could reduce carbon emissions from each barrel of oil it produces by 15% by 2035 or 51.1 million tons of carbon annually.

We don’t see any contradiction. Combating emissions from these conventional energy sources is a very viable option,” says Ashraf Al-Ghazzawi, executive vice president for strategy and corporate development.

Ahmad Al-Khowaiter, Aramaco’s executive vice president for technology and innovation, told Fortune “We need all sources of energy to meet the growth in demand, which is just tremendous in the developing world. The main pillar of our strategy and technology is efficiency and optimization of our existing production.” Since 2010, the company has tripled its R&D team, according to Khowaiter, and it has listed 1,033 patents with the US Patent Office. Presently, Aramco invests over $800 million annually in R&D, with “sustainability” accounting for 60% of that total.

Last year, GreatGameIndia reported that, according to Reuters, Russia overtook Saudi Arabia as China’s top oil supplier after Chinese imports of Russian crude jumped by 23.8% year over year to 1.94 million barrels per day (bpd) in January and February 2023.

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