The Saudi sovereign wealth fund increased its stake in the Kingdom’s oil giant, Aramco, as it announced, on Wednesday, the completion of the transfer of 8 percent of the company’s total shares to the fund.
The Saudi Crown Prince, Prince Mohammed bin Salman, confirmed the completion of “the transfer of shares from state ownership to portfolios wholly owned by the Public Investment Fund,” according to a report published by the Saudi Press Agency.SPA“.
He pointed out that the total shares owned by the state after the transfer process exceed 82 percent of the total shares, and the share of the sovereign fund thus rises to 16 percent.
The Saudi Prince justified the transfer with the aim of “continuing the Kingdom’s initiatives aimed at strengthening the national economy in the long term, diversifying its resources and providing more investment opportunities in line with the goals of Vision 2030.”
He stressed that the transfer process contributes to “maximizing the assets of the Public Investment Fund and increasing its investment returns, which enhances the fund’s strong financial position and credit rating.”
The transferred share is “8 percent of Aramco’s market value, or about $164 billion,” according to what a company media official told AFP, and this is what data from the London Stock Exchange Group showed, according to Reuters.
Aramco is the fourth largest company in the world in terms of market value, exceeding two trillion dollars.
What does the increase mean for the sovereign fund?
Oil sector expert, Amer Al-Shobaki, said that the increase in the sovereign fund’s ownership of Aramco shares is consistent with Saudi Vision 2030, as the share transfers that took place more than once “enhance the fund’s position and financial solvency, and strengthen its position as the fifth largest sovereign investment fund in the world.” The world,” and previous transfers each amounted to 4 percent of the giant oil company’s shares.
He added in response to Al-Hurra website’s inquiries, “The fund’s assets have surpassed important Arab sovereign funds to exceed the assets of the Kuwaiti fund, and it aspires to become the largest in the world if it exceeds $2.7 trillion.”
Al-Shoubaki believes that transferring ownership of shares from the state to the fund represents “important economic decisions in order to compensate for its losses that were achieved during the past year, and enhances its financial solvency, giving it the ability to expand in the other various economic sectors that it targets. Thus, Riyadh supports the fund at the expense of Aramco.”
The Saudi Public Investment Fund recorded losses in investment activities amounting to about $11 billion during the year 2022, compared to profits of $19 billion in 2021, according to Bloomberg, while the results of 2023 have not yet been issued.
The fund raised $7 billion from two separate debt sales this year, benefiting from strong investor demand for emerging market debt, according to Reuters.
Global SWF stated in a report, in late February, that its total debt is estimated at about $36 billion, adding that it is unlikely that the sovereign fund will stop its borrowing spree.
Last April, the Saudi Crown Prince announced the transfer of an additional 4 percent of Aramco shares from state ownership, valued at tens of billions of dollars, to the Saudi Arabian Investment Company “Sanabel Investment,” which is wholly owned by the Investment Fund.
This came more than a year after another 4 percent was transferred directly to the fund. In February 2022, the Public Investment Fund obtained 4 percent of Aramco shares, valued at about $80 billion at the time, with the aim of supporting the fund’s work to diversify the economy.
“This ownership transfer will save the Public Investment Fund more than $9 billion in annual dividend income from Aramco,” Justin Alexander, director of consultancy Khaleej Economics, told Reuters.
The expert Al-Shoubaki believes that this step may “precede trends in offering more Aramco shares for subscription, which may not only be in the local Saudi market, but may also be offered in international financial markets.”
Aramco was listed on the Saudi Stock Exchange in December 2019 after the largest initial public offering in the world, the value of which reached $29.4 billion in exchange for the sale of 1.7 percent of its shares.
Saudi Arabia doubles the sovereign fund’s stake in Aramco
Saudi Arabia has transferred eight percent of Aramco Oil Company shares to companies wholly owned by the Public Investment Fund, the country’s sovereign wealth fund, as the kingdom reorganizes its holdings ahead of a potential public offering in the oil giant.
Sources told Reuters last month that Saudi Arabia is preparing to sell more Aramco shares later this year, which could increase funding for the Kingdom’s Vision 2030 program.
The Governor of the Public Investment Fund, Yasser Al-Rumayyan, who also heads Aramco, stated last month that the fund intends to increase its capital to $70 billion annually after 2025, from $40 to $50 billion currently.
How do Aramco shares support the sovereign fund?
He pointed out that the Fund announced ambitious projects and plans during the recent period, whether in the fields of air transport, the electric car industry, or even in the fields of entertainment and sports.
Al-Shoubaki said that this matter does not “mean any loss for the Kingdom in its shares in Aramco, as everything that happened is similar to a redistribution of the ownership of the shares, and instead of them being owned directly by the state, they are now owned through the sovereign fund.” Thus, it is using an important advantage it has by optimally exploiting the ownership of the shares. Shares so that Aramco becomes a supporter of the Kingdom and the investment fund at the same time.
The fund is located at the heart of the Crown Prince’s ambitious plan to diversify the economy by establishing so-called mega projects and new industries, as it has transformed from an inactive sovereign investor into a global investment vehicle that bets billions of dollars on everything from technology and sports.
Since Prince Mohammed bin Salman assumed the position of Crown Prince in 2017, the Kingdom has been working on trying to diversify the economy by supporting the entertainment, sports, tourism and other sectors, with the aim of ending the historical dependence on oil, according to Agence France-Presse.
The fund, which is considered one of the largest in the world, manages assets worth more than $700 billion, through investments in 90 companies in 13 economic sectors, and its portfolio varies from investing in sports and attracting elite football players to launching a new national airline and a luxury café serving coffee and ice cream from… Camel milk, which made it the main driver of the current transformation in the Saudi economy.
“It’s all about access to more investment capital,” Robert Mogelnicki, an expert at the Arab Gulf States Institute in Washington, told AFP. “This boils down to larger dividend payments, a stronger financial position, and more assets under management.”
He continued, “There is also a precedent for this transfer, which makes it easy to replicate.”
The fund invested $31.5 billion last year, becoming the most spending sovereign wealth fund in the world.
Aramco, the crown jewel of the Saudi economy, achieved “record” profits amounting to $161 billion in 2022.
However, as a result of the decline in crude prices and quantities sold, its net profits declined by 23 percent in the third quarter of 2023 compared to the same period last year, after a net profit decline of 19 percent in the first quarter and 38 percent in the second quarter.
Aramco will announce its annual profits for 2023 next Sunday.
Aramco said in a disclosure to the Saudi Stock Exchange that this is a private transfer of ownership and that the company is not a party to it and has not entered into any agreements or received any revenues from this transfer.
She added that the transfer of ownership will not affect the total number of issued shares of the company, and that the transferred shares will be classified equally with the other common shares of the company, and that this will not affect its operations, strategy, dividend policy or governance framework.
The Saudi government relies on Aramco’s generous payments, which include basic returns and dividends and additional performance-linked dividends introduced last year.
The state pumped huge liquidity into the Public Investment Fund, including transferring $40 billion, in 2020, as it spends large sums in an attempt to reform the economy and reduce dependence on oil.
Among its impressive list of endeavors is the futuristic city of NEOM planned for construction in the desert, which is scheduled to host the Asian Winter Games, in 2029. Prince Mohammed bin Salman said, in July 2022, that the city would be listed this year and that its first phase alone would cost about 320 billion. dollar.
Projects that “drain money”… Saudi ambitions face financial pressure
The American Wall Street Journal said that Saudi Arabia is proceeding with its ambitious plans to develop its economy, but it is facing financial “pressure” with the decline in the amount of money in the wealth fund, and the “moderation” of oil prices that do not meet the Kingdom’s ambitions.
“Funding requirements are increasing to proceed with the implementation of multiple projects,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, told Reuters.
She added, “This step reflects the pivotal role of the Public Investment Fund in advancing economic diversification efforts and the importance of oil revenues to finance the investment program. The government is likely to receive a smaller share of the total dividend distributions, but the main goal is to make progress in terms of economic transformation.”
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