Saudi Arabia taps banks for new Aramco share sale

Oriental Image via Reuters Connect

• Aramco share sale upcoming
• Potential value of $20bn
• Several banks being considered

Saudi Arabia is set to hire banks including Citigroup, Goldman Sachs Group and HSBC Holdings for a potential secondary share sale in state oil company Aramco that could raise nearly $20 billion – up from earlier estimates of $10 billion.

Bloomberg and Reuters reported that the kingdom is in talks with several banks as it aims to get advisers on board for the upcoming initial public offering. 

A source told Bloomberg the IPO could take place in the coming weeks, while Reuters reported it was more likely to be in the second or third quarter of this year.

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No final decision on the size of the IPO has been made.

Some Wall Street banks were involved in Aramco’s initial float in 2019, in which the oil conglomerate raised nearly $30 billion – the world’s largest IPO – paying just over $100 million in fees.

The government owns about 90 percent of Aramco, the world’s largest oil producer, while the sovereign Public Investment Fund holds another eight percent.

Saudi Crown Prince Mohammed bin Salman said in January 2021 that the government plans to sell more Aramco shares.

Late last month, Aramco announced that it received a directive from the energy ministry to maintain its maximum sustainable capacity at 12 million barrels per day (bpd) and not to raise it to 13 million bpd.

“This would translate to higher free cash flows and could potentially result in higher dividends as well,” Shakeel Sarwar, a Bahrain-based head of asset management equities at Sico Bank, told AGBI.

Appealing investment

Aramco’s positive performance in 2022 and 2023 would make it appealing to investors seeking stable and consistent returns, said Vijay Valecha, Century Financial’s chief investment officer.

Aramco, with a $2 trillion market value, has introduced a new mechanism to boost dividends, attract more investors and improve liquidity. But other major rivals offer a much better value proposition, Sarwar believed. 

The Sico Bank executive pointed out that Aramco is trading at more than 100 percent premium compared with Shell or BP’s next-12-months enterprise multiple, used to assess future valuation. The enterprise multiple is calculated by dividing a company’s enterprise value (market cap plus total debt, minus cash and cash equivalents), by its Ebitda.

The dividend yield for all three businesses is broadly similar. 

During Aramco’s IPO, the majority of participation came from regional investors as international investors had apprehensions about the valuation, he added: “The market cap now is 17 percent higher than the IPO price, so global investors could again shy away from the deal on higher-than-expected valuation unless they are offered a better-brokered deal.”