Investors rush Aramco’s $11.2 bn stock sale as NNPC sticks to old ways

International investors have snatched up the bulk of shares in Saudi Aramco’s latest $11.2 billion stock sale, an amount higher than the total FX Nigeria ($4.1bn) utilises within a quarter indicating how a well-run oil company can provide a dollar supply to an economy.

BusinessDay’s findings showed the secondary offering was expected to offer a short-term boost to Saudi Arabia’s finances as the Gulf kingdom builds large-scale projects including resorts and stadiums, part of a reform drive to prepare for an eventual post-oil future.

“The majority of the shares constituting the institutional tranche of the Offering was allocated to investors located outside of the Kingdom,” Aramco said in a statement before the Saudi bourse reopened on Sunday.

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Sources close to the situation told AFP that around 58 percent of shares were allocated to international investors, up from around 23 percent for the company’s initial public offering in 2019 which was the biggest flotation in history.

The sources, speaking on condition of anonymity to discuss the private information, said around 70 percent of orders outside the local market came from the European Union and the United States, while others came from Japan, Hong Kong and Australia.

Aramco, the mostly state-owned jewel of the Saudi economy, announced on May 30 that it would sell 1.545 billion shares, or approximately 0.64 percent of its issued shares, on the Saudi stock exchange.

About 10 percent of the shares were offered to retail investors, drawing 1.3 million subscribers, Aramco said on Friday.

One source close to the situation told AFP that retail coverage was 3.7 times and that total demand from institutional and retail investors was worth over $65 billion.

“The whole deal would have been covered a number of times by international demand. It was a lot stronger at this stage than it was at the IPO,” the source said, referring to the 2019 offering.

The source said it appeared to be the largest secondary offering in the EMEA (Europe, Middle East and Africa) region since 2000, the largest equity capital market transaction globally since 2021, and the largest offering in the Middle East since Aramco’s IPO, which ultimately raised $29.4 billion.

Aramco announced last year it would start paying a performance-based dividend in addition to its base dividend.

Last month the firm announced base dividend payouts for the first quarter totalling $20.3 billion and a performance-linked dividend distribution of $10.8 billion to be paid in the second quarter.

“It is no surprise that eligible traders wanted to buy shares, especially after seeing how the dividend payments have gone out regardless of how much money the company made,” said Ellen Wald, senior fellow at the Atlantic Council and author of a history of Aramco.

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This is not the case for the Nigerian National Petroleum Company Limited (NNPC). The state-owned company, the equivalent of Saudi Aramco is struggling with dollar remittance practices amid the lingering foreign exchange crisis in the country.

Experts argue that NNPC’s dollar earnings, if fully remitted and managed effectively, could significantly bolster the country’s foreign exchange reserves and stabilise the exchange rate.

“Once upon a time, NNPC was the goose that laid the golden egg for Nigeria’s FX; where are all the dollars from crude oil operations?” a senior oil executive asked.

The Nigeria Extractive Industries Transparency Initiative (NEITI), an industry watchdog, said the NNPC did not remit over $2 billion to the federation account in 2021 before transitioning to a commercial venture.

This $2 billion consists of $722.596 million in unremitted dividends from the Nigeria LNG, $286.4 million of unremitted crude oil export sales, $871.145 million of unremitted domestic crude sales, $24.332 million of unremitted transportation revenue, $45.758 million of unremitted domestic gas proceeds and $859,583 of miscellaneous revenue.

NEITI also showed in the same year that the NNPC failed to remit $2 billion, and Nigeria’s oil and gas industry generated $23 billion in revenue.

It said the portion of total revenue that was eventually available for sharing by the federation by the revenue allocation formula stood at $13.2 billion, representing 57.27 percent of total revenue.