Saudi Aramco considering selling $50 billion shares

FXTSaudi Aramco, the world's most valuable oil company by market capitalisation, appears set to begin offering shares again.

Saudi Arabia is considering selling up to $50 billion of its Aramco stake in what would be the largest share offering in the history of capital markets, people familiar with the potential deal said.

After months of consultations with advisers, Saudi Arabia decided to launch new shares on the Riyadh exchange to avoid the legal risks of an international listing, according to Saudi officials and others familiar with the plan.

The timing of the deal has not been determined, but some people familiar with the matter say Saudi Arabia could issue shares before the end of the year.

Some of them said Saudi Aramco had been exploring whether potential investors, such as other multinational oil companies and sovereign wealth funds, would be willing to participate in the deal.

This deal is more likely to be delayed or cancelled altogether than most deals.Over the years, Riyadh has proposed several different plans to raise funds through Saudi Aramco, but some of them ultimately failed or were abandoned.

Last year, Saudi Aramco considered selling more shares on the Riyadh Stock Exchange and possibly a secondary listing in London, Singapore or elsewhere, but ended up with unfavorable market conditions.

Aramco did not respond to a request for comment.

However, a $50 billion share sale may be difficult to achieve.The company's initial public offering on the Saudi Stock Exchange in 2019 raised proceeds of $29.40 billion, setting a record for the previous largest IPO in the world.

The 2019 listing was a scaled-down version of the company's original ambition to sell 5% of the company for as much as $100 billion, including listing on major international exchanges. But international investors were wary about corporate governance issues and the stock price, which valued the company at $1.70 trillion. The domestic-only IPO eventually took 1.5% of the company public.

Saudi Arabia has long wanted to sell a majority stake in the oil giant.This is part of a strategy developed by the actual leader, Crown Prince MohammedThe goal is to monetize Saudi Arabia's vast oil assets and use the proceeds to invest in industries other than oil.

In April 2021, Mohammed said in a televised interview that the kingdom was in talks with anonymous foreign investors about selling Aramco shares, including the acquisition of a 1% stake by a leading global energy company.

Saudi Aramco, which is majority-owned by the Saudi government, said in May that it would introduce an additional dividend tied to annual financial results based on the company's free cash flow. The move is partly aimed at attracting more investors after Aramco faced pressure from shareholders to pay more, according to officials familiar with the matter.

Last month, due to falling energy prices and production cuts, its second-quarter net profit fell sharply by 38% year-on-year to $30.10 billion, and its first-half net profit was $62 billion, down 29% year-on-year.But Aramco's dividend rose by more than half over the same period, highlighting the kingdom's reliance on oil revenues.

Therefore, in the face of falling oil prices, in addition to allowing Saudi Arabia to decide to sell its stake in Aramco, the market expects Saudi Arabia's plan to cut oil production by 1 million barrels per day to be extended until at least October.

At the end of August, the vast majority of traders and analysts surveyed by the media expected Saudi Arabia's plan to cut production by 1 million barrels a day to extend until at least October to continue boosting prices. Some representatives of OPEC and its allies privately shared the same forecast.There is a lot of macroeconomic uncertainty at the moment, and if Saudi Arabia eases its production cuts too soon, speculative bears could return.

In recent months, Saudi economic advisers have privately warned senior policymakers that the kingdom needs to raise oil prices over the next five years in order to continue investing billions of dollars in projects that do not currently attract foreign investment, analysts estimate.Saudi Arabia needs to keep oil prices above $80 a barrel to fund the crown prince's economic transformation program.

And Saudi Arabia's support for oil prices by cutting production would make the country actually need more oil than $80.Falling oil prices pose risks to Saudi Arabia, whose foreign exchange reserves have fallen to their lowest level since 2009.