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10 December 2019

Saudi Arabia to invest much of its Aramco IPO proceeds locally

Selling a stake in the state oil giant is the first major government privatisation since Crown Prince Mohammed Bin Salman announced plans for an overhaul of the Saudi economy in 2016.

Mohammed Al Jadaan, Saudi Arabia's Finance Minister/Michael Nagle

Saudi Arabia’s finance minister said that the Kingdom's sovereign wealth fund expects to spend a considerable amount of the $26 billion proceeds from the sale of shares in Saudi Aramco in the domestic economy as it shifts focus toward high-impact local investments, reported Bloomberg.

Mohammed Al Jadaan, the Saudi Minister of Finance, said that the Public Investment Fund (PIF) will invest the windfall from the Saudi Aramco initial public offering (IPO) in the local economy in sectors that are promising, sectors that are large and require a large investment which the private sector cannot really invest on their own.

The Saudi Aramco stake sale is the biggest IPO ever and means the world’s most valuable listed company will be an oil company traded on the Saudi stock exchange and not a US technology giant.

While not the mega-sized offering initially outlined, the Saudi Aramco deal still gives the Kingdom’s sovereign fund ammunition to help develop various projects around the country, including a futuristic new city called NEOM that is expected to cost $500 billion.

Jadaan, who sits on the board of the PIF and Saudi Aramco, said the sovereign fund was in the process of reviewing how much it invests internationally against its domestic commitments.

“They wanted to make sure that they spend where it matters, most likely the preference will be more local than international, but they are continuing to be an important investor internationally,” said Jadaan.

Saudi Arabia will continue to sell bonds next year as it looks to fund a budget deficit set to rise to 6.4 per cent of economic output in 2020, from 4.7 per cent, added Jadaan. The government is planning to issue local currency debt and sell bonds internationally, in addition to eyeing new funding sources, including export credit agencies, to help fill the budget gap.

The finance minister said that the funding mix will depend a lot really on the market conditions. Jadaan said, “Whether it is locally or internationally and the currencies and whether it is ECAs or other alternative financing or Sukuk or bonds. But these are options that are being studied by the Debt Management Office and will be decided at the time.”

Since tapping international debt markets for the first time in 2016 Saudi Arabia has become a regular issuer. It raised SAR 113.5 billion from domestic and international investors in the year to October 2019, including the first euro-denominated sale in July this year.

RELATED STORIES: Public Investment Fund Saudi Aramco NEOM





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