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Aramco will pull the trigger today on a blockbuster follow-on offering that could see it raise up to SAR 43.5 bn, according to our calculations. The oil giant is taking an additional 0.64% stake to market, or 1.5 bn ordinary shares, guiding on a price range of SAR 26.70-29.00 a piece, it said in a statement on Thursday.
The timeline: Institutional book-building gets underway in just a couple of hours and will run until Thursday, 6 June, according to a separate statement (pdf).
Pundits are tipping the secondary share sale as the sixth largest globally since Aramco’s USD 30 bn Tadawul IPO in 2019, and the fourth largest follow-on offering within the same period, Bloomberg reports.
Aramco is courting international and regional institutions for the offering. The institutional tranche of the sale will account for at least 90% of the shares on offer, while no more than 10% will be allocated to retail investors, according to the prospectus (pdf) for the transaction. The offering will be Regulation S compliant, making it easier for global institutional investors to take part.
Who’s selling? Aramco’s largest shareholder, the Saudi government, is selling down its position to an 81.55% stake from 82.19%. The treasury will take home most of the offering’s proceeds to support its diversification strategy and reduce the local economy’s reliance on oil revenues. Its shares will remain in lock-up for a period of six months from the first day of trading.
IN CONTEXT- The transaction comes as the government looks to unlock non-oil sources of income to plug its budget deficit and push bns of USD worth of gigaprojects out of the pipeline. Think massive investments in sports, AI, tourism, and infrastructure.
Remember- PIF upped its stake in Aramco ahead of the expected sale: Sovereign wealth fund PIF doubled its stake in Aramco to 16% in March, which the oil company says did not affect its total number of issued shares nor its operations, strategy or dividend distribution policy. The sale “may certainly bolster the PIF balance sheet” Helima Croft, global head of commodity strategy at RBCs investment bank, tells S&P Global.
Key dates to watch:
- Institutional investors will be able to place their orders starting today until Thursday 6 June, for a minimum of 100k shares each. No maximum limit applies;
- Retail investors will get a three-day subscription period starting tomorrow until Wednesday, 5 June, for a minimum of 10 shares each with no upper limit;
- The final allocation of shares and final price of the offering will be announced on the same day, Friday, 7 June;
- Newly sold shares will start trading on Sunday, 9 June, following the completion of negotiated trades and the deposit of shares into retail investors’ portfolios;
- Excess subscription amounts will be returned on Tuesday, 11 June.
Buyers can expect part of a USD 124 bn dividend, which Bloomberg Intelligence expects will amount to a dividend yield of 6.6%. Aramco is set to boost its dividend this year by as much as 30% over 2023 thanks to a performance-based dividend, despite a 14.4% y-o-y dip in net income in 1Q 2024 to SAR 102.3 bn on lower crude oil sales.
What the pundits are saying: “The stock hasn’t performed well recently but it’s a fantastic buy-and-hold position,” Ryan Lemand, chief executive officer of Neovision Wealth Management told Bloomberg. “It is a dividend play for institutional investors,” he said, adding that “risks are mainly related to valuations because the company trades at higher multiples than its peers.
ADVISORS- The Bulge Bracket owns this one. SNB Capital is lead manager. HSBC, BofA, Citi, Goldman Sachs, JP Morgan, Morgan Stanley, Meryll Lynch, and SNB Capital will act as joint global coordinators, bookrunners and financial advisors. Al Rajhi Capital, Riyad Capital and Saudi Fransi Capital will act as domestic bookrunners. Meanwhile, M. Klein and Company and Moelis will act as independent financial advisors. Meryll Lynch will act as the stabilizing manager. White & Case will act as Aramco’s legal advisor. Pwc will act as auditor. Receiving agents include, Alinma Bank, Alrajhi Banking and Investment Corporation, Arab National Bank, Banque Saudi Fransi, Riyad Bank, Saudi Awwal Bank, Saudi National Bank.
