Higher oil prices this year are helping Saudi Arabia to reduce its budget deficit which soared with the oil price collapse last year. But the Kingdom and its de facto ruler, Crown Prince Mohammed bin Salman, need more than oil revenues to continue carrying out the ambitious Vision 2030 plan of diversifying the economy away from oil—a lot more.
One of the easier ways to raise billions of U.S. dollars without tapping more and more of the international debt markets is to monetize chunks of the most valuable oil company in the world and the single largest global oil exporter, Saudi Aramco.
The Crown Prince’s plans for Vision 2030 and other mega projects such as the NEOM “smart city of the future” need trillions of U.S. dollars in investments. Saudi Arabia is trying to attract foreign investors into its vision for the post-oil era, but many Western firms are not exactly queuing to sink their money into an autocratic country with a far-from-perfect image regarding human rights and freedom of speech.
So monetizing the cash cow, Saudi Aramco, would both help the Kingdom to continue receiving the overwhelming part of the oil giant’s massive $75 billion annual dividend and reduce the company’s debt, which soared last year after the acquisition of petrochemicals giant SABIC and the crash in oil prices during the pandemic.
Currently, it makes sense for the Crown Prince to look to sell more of the Kingdom’s oil giant, considering that Aramco trades at a premium valuation compared to those of the Western supermajors, Forbes reporter Christopher Helman notes.
Aramco is “trading in its own universe,” Helman quoted Oswald Clint at Bernstein Research as describing the Saudi giant’s performance on the domestic market.
Aramco in itself is “its own universe”—it is the world’s biggest oil firm, but its policies and production volumes depend on its majority shareholder with more than 98 percent, the Kingdom of Saudi Arabia.
The Crown Prince is apparently eager to rake in more cash from a sale of just a tiny 1 percent stake in Aramco. Considering Aramco’s total value, that 1 percent would be worth as much as $19 billion.
The government of Saudi Arabia is negotiating the sale of a 1-percent stake in Aramco to a “leading global energy company”, the Crown Prince said in televised remarks last month.
“This deal could be very important in strengthening Aramco’s sales in the country where this company resides,” he added, without elaborating which the country or the “leading global energy company” is.
It looks like the market already has some idea about the “country where this company resides”. It is probably China. According to most analysts, China and its state-backed funds and energy companies are the most likely candidates that would not dwell on reputational risks about allying with Saudi Arabia’s state oil giant. Analysts think that none of the international oil companies would have neither the means nor the interest to splash $19 billion (or any amount) on a deal that would saddle it with geopolitical and reputational risks. The current net-zero drive at Big Oil is also a big deterrent.
Talk of the 1-percent sale came shortly after Aramco reached an agreement with a consortium led by EIG Global Energy Partners to sell it a 49-percent stake in Aramco Oil Pipelines Co.
The Saudi giant is also considering selling a stake in its gas pipeline network to raise cash and attract foreign investors, sources with knowledge of the matter told Bloomberg last month.
Selling minority stakes in assets or in the equity of Saudi Aramco would not only help the oil giant to ease the debt it burdened itself with over the past year. It would also help Saudi Arabia and its Crown Prince to show the world that the Kingdom is still an attractive investment destination.