The $11.2 billion sale of new shares by the Saudi oil giant Aramco last week sparked a lot of debate about the goals of the process, the company’s future, and whether or not such operations are actually feasible to support the Kingdom’s economy.
It is important to note that the new IPO process attracted a lot more investors than the December 2019 initial public offering, according to our sources within the company who wished to remain anonymous.
According to the “Oil Price” website, the recent share sale process has raised questions about the Saudi company’s future, potential harm in the oil and gas market, and its ability to work toward providing the necessary financial liquidity to the Kingdom of Saudi Arabia. It also raises questions about whether this process will lead to new calls for the enactment of a new antitrust law against the Kingdom of Saudi Arabia and the oil giant Aramco because of the close ties between the two parties and the global oil markets.
According to economic reports from international newspapers, the main reason Saudi Arabia is buying Aramco shares is to make up for the massive budget deficit that resulted from the 2014–2016 oil price war, which was started to sabotage or impede the growth of the American shale oil industry. As a result, Saudi Arabia ended 2015 with a $98 billion budget deficit and had to spend at least $250 billion of its valuable foreign exchange reserves during that time.
It is noteworthy that Saudi Crown Prince Mohammed bin Salman (MBS) introduced the idea of subscribing to Aramco shares in order to raise capital to close the budget deficit in the Kingdom and to increase spending on the 2030 plan, which aims to diversify the Saudi economy rather than rely solely on oil. This goal has not been met despite Bin Salman’s eight years of effective rule over the country, especially since his father’s illness and advanced age prevented him from participating in daily affairs.
According to a report on the Oil Price website, the IPO was largely avoided by Western investors, resulting in a reduction in the offering size from 5 percent to just 1.5 percent. In order to secure the sale of even a 1.5 percent stake, the Saudi government was compelled to offer a guarantee of enormous dividends in addition to the initial public offering since it was unable to locate a significant international listing destination.
It is noteworthy that the Saudi Ministry of Finance announced that the budget deficit would persist until 2026 and that the Saudi Crown Prince’s projects, particularly NEOM and The Line, would be significantly scaled back. This was due to the significant budget deficit, a lack of liquidity to support increased project spending, and a lack of interest from foreign investors in MBS’s projects. This year’s budget deficit is predicted to be 79 billion Saudi riyals, or 21.07 billion US dollars. Many observers of the oil market feel that this is an extremely optimistic estimate, as the actual deficit is much higher.
