Saudi Arabia’s state oil giant, Aramco, has successfully sold a new chunk of its shares, attracting a significant amount of foreign investment. This sale comes over a year after the kingdom began preparing for the move, targeting foreign investors who had largely shunned Aramco’s previous $29.4 billion initial public offering (IPO) due to concerns about governance, regional geopolitics, and environmental risks.
The recent $11.2 billion share sale was a game-changer, with over half of the shares being purchased by foreign investors. This is a far cry from the situation five years ago when foreign investors largely avoided the IPO. The influx of foreign money is critical for Saudi Arabia’s ambitious economic transformation, known as Vision 2030, which aims to diversify the economy and reduce the kingdom’s reliance on oil.
The success of the latest Aramco share sale can be attributed to the efforts of CEO Amin Nasser and the preparation that took more than a year. The deal included more than 100 new investors from the United States, Britain, Hong Kong, and Japan, among others. However, questions remain about the identity and long-term commitment of these foreign investors, as there is no clear indication of whether they are major institutional buyers or if they will hold their positions or sell them at the first opportunity.
Despite the high foreign allocation, the Saudi government still maintains a significant stake in Aramco, owning directly and indirectly around 97.6% of the company. The kingdom’s need for funds, after years of lavish spending on projects like the merger of LIV Golf with the PGA Tour, and Aramco’s oil production constraints under OPEC+ agreements, have driven the push for this share sale.
The Saudi government’s sovereign wealth fund, the Public Investment Fund (PIF), is at the forefront of the kingdom’s economic transformation, investing in various ventures, including the futuristic city project in the desert. However, analysts have raised concerns about the PIF’s investments, noting that some ventures have yet to yield sufficient returns, such as its $6.4 billion investment in electric carmaker Lucid since 2018.
Overall, the successful Aramco share sale represents a significant milestone in Saudi Arabia’s efforts to attract foreign investment and diversify its economy. The inflow of foreign capital is crucial for the realization of the ambitious Vision 2030 plan, but the long-term commitment and quality of the new investors remain a subject of ongoing scrutiny.