Saudi Arabia Tests International Investor Interest with $13.1 Billion Aramco Share Sale

Dubai, May 31 (Reuters) – Saudi Arabia, its desire to unlock more international capital likely driving it, is poised to begin accepting orders for as much as $13. 1bn of shares in oil colossus Aramco (2222. SE) from Sunday. This sale demonstrates the kind of appeal in the Saudi market, especially given Aramco’s unprecedented IPO in 2019.

The kingdom and Aramco spelled out the strategy on Thursday, with the intention to offer up to 0. 7% of floating stake in the state controlled oil company, of which, 10% shall represent the share for retail buyers. The order-taking will be available to the consumers up to June 6 while the pricing will commence from June 7.

Known internally as Project Bond, it is certainly being viewed as a way for Saudi Arabia to spread the risk across the country’s limited economic base and attract a more diverse pool of investors. The sale will also finance the Kingdom’s development plan- Vision 2030, which is an economic diversification program headed by MbS.

However, this move comes at a relatively low foreign investor interest, which has in the past expressed concerns on high valuations, government control in Saudi, and shifting focus towards green ENERGY. Due to these factors, Aramco’s exposure was limited during the IPO operations, which resulted in a conservative strategy during IPO.

Some potential investors remain concerned with such factors as the environmental conditions and the governance structure. “The enhanced cash flow position for the shareholders may not necessarily make the social slippery IPO adequate to lure those overseas investors who refrained from the IPO as a result of the fossil fuel controversies or governance problems,” added Hasnain Malik, the head of equity research, Dubai headquartered Tellimer.

However, Aramco’s Chief Financial Officer Ziad Al-Murshed said that he hopes to sell shares at between 26. 7 riyahs ($7. 12) to 29 riyals, which is a slight premium to the IPO price. Market capitalization currently sits at $1. 87 trillion as opposed to what it was at the time of IPO, which came in at $1. 7 trillion.

Indeed, owing to the PIF, MbS has been funding different sectors such as electric vehicle production, sports investment, and an airline to focus on a post-oil economy besides creating employment. In the words of Jim Krane, a research fellow at Baker Institute of Rice University, floating of Aramco shares can be a comparatively straightforward method of fundraising compared to attracting international investment for the huge projects of the kingdom under Vision 2030.

A large portion of buyers are expected to be from the domestic local investors, making the scheme to be nearly fully funded by the buyers. Selling shares on the Saudi Exchange also involves some less regulatory and reporting obligations than some other exchanges, which helps.

The bank has solid backing from several advisers that include Klein & Co, Moelis & Co, SNB Capital, several other institutions such as Morgan Stanley, Citi, Goldman Sachs, HSBC, Bank of America, and JPMorgan. As said by Aramco CEO Amin Nasser, the sale offers existing investors, who are keen on growing their stakes, the chance to gain a large stake in a company with a diversified and deep shareholder base and highly liquid shares.

This share sale is occurring with an OPEC Sunday meeting in which the oil cartel, led by Saudi Arabia, has plans to decide on future production strategies. This meeting could potentially decide the fate of the global oil market as they have hinted on the continuation of the agreement to reduce output to 2025.

Global investors will be observing this event as an indicator of confidence accrued on Saudi Arabia in terms of its new economic status.