On Thursday local time, Saudi Aramco, ranked third in the world's listed companies by market value ($1.98 trillion), announced the latest fundraising news.
According to insiders, Saudi Aramco is preparing to hire investment banks including Goldman Sachs, Citigroup, and HSBC to prepare for a secondary stock issuance. Contrary to previous rumors, the latest news indicates that Saudi Aramco is preparing to raise nearly $20 billion this time, and this project can be launched as soon as the next few weeks. Insiders also emphasize that there is uncertainty regarding the specific investment bank lineup involved in the issuance, as well as the potential fundraising time.
What is the concept of a single fundraising of 20 billion US dollars? In the history of the Earth, there have been few secondary market issuance events that can reach a single $20 billion. The current IPO fundraising record is nearly $30 billion set by Saudi Aramco when it went public in 2019. Going further, the IPOs of Alibaba (US stock) and SoftBank have also reached a fundraising scale of $20 billion.
It is worth mentioning that in the historic IPO in 2019, Saudi Aramco only publicly sold 1.5% of its shares on the Saudi Arabian Stock Exchange (Tadawul). So in the following years, there will be occasional news of companies preparing to further sell their stocks. Saudi Crown Prince and Prime Minister Mohammad publicly mentioned the idea of further selling Saudi Aramco stocks in 2021 and stated that the proceeds would be transferred to sovereign wealth funds.
In the equity structure of Saudi Aramco, 90% of the equity is directly held by the Saudi government, while the Public Investment Fund (PIF) and its subsidiary, Saudi Investment Corporation, jointly hold an additional 8% of the equity.
There is also an issue related to issuance fees
Many rumored participants in the latest international release have also participated in the 2019 release. In addition to the fundraising that broke the Earth's historical record, another thing that was often mentioned back then was that securities firms only received very low commissions.
In the 2019 IPO, which raised nearly $30 billion, Saudi Aramco paid a total of only $100 million in commissions to a group of securities firms. Horizontally, Alibaba's 2014 IPO raised nearly $25 billion and paid underwriters nearly $300 million. In some more ordinary IPOs, the commission ratio of securities firms will also be higher. For example, in a $1.2 billion fundraising deal for the home sports concept stock Pai Le Teng in 2019, Goldman Sachs and JPMorgan Chase received a total of $60 million in commissions.
So foreign securities firms participating in the latest round of stock sales are highly likely to receive commissions that are similar to those of the previous year. Besides not being able to use the international channels of these investment banks for domestic stock issuance in Saudi Arabia, being able to participate in the IPO of Saudi Arabia's largest state-owned enterprise is also considered beneficial for these foreign securities firms to further expand the opportunities for diversified transformation in the Kingdom of Saudi Arabia.