The sale of a 1% stake in Saudi oil giant Aramco could see the Kingdom’s sovereign wealth fund PIF take a slice of the proceeds to fund domestic mega projects.
Aramco’s 2019 IPO raised US$25.6 billion with further share sales bringing the total to US$29.4 billion – all of which was transferred to PIF to support economic diversification. Based on its current market capitalization, a 1% stake in Aramco would be valued at US$19 billion and give a significant boost to the fund’s coffers and assist it on its way to its target AUM of US$2 trillion by 2030. Its target would move it from the world’s 12th biggest state-owned investor to the second biggest, after Norway’s NBIM.
All options are on the table, including the sale of the stake to one or more international oil majors or listed on the bourse – or, potentially, a mixture of private and public transactions. MBS said a deal was possible within the next year or two.
Among those in talks with Aramco to purchase a stake are sovereign wealth fund China Investment Corporation (CIC) and state-owned Chinese oil companies, according to Reuters. The acquisition would mark an interesting geopolitical pivot by Riyadh as relations with Washington cool following the election of Joe Biden as president.
Political and economic relations between China and Saudi Arabia are strengthening and could be further cemented by CIC ownership of a stake in Aramco. The two nations' governments are increasingly uneasy about Biden's foreign policy. The new president has taken a tough line against Saudi Arabia’s involvement in Yemen and has confronted China’s approach to Taiwan’s political autonomy and issues relating to Xinjiang province's Muslim population. Saudi Arabia has also recently emerged as China’s biggest foreign crude supplier, boosting their trade links.
Whoever snaps up the stake will be making an important contribution to the Saudi economy, if PIF becomes the financial beneficiary. The Saudi fund is set to invest US$800 billion in Saudi Arabia’s US$3.2 trillion worth of investments planned by 2030. Securing funds to achieve that effort are crucial to the Kingdom’s Vision 2030 program that seeks to address demographic pressures with a millions of young Saudis requiring jobs over the next decade. It is backing domestic mega-projects such as the flagship tourism project at the Red Sea, the planned US$500bn Neom economic zone and the entertainment hub at Qiddya.
