Saudi Aramco/BlackRock: Pipeline transaction shows that Saudi Arabia is open to foreign direct investment
Saudi Aramco is a listed company with only one important shareholder: the state. Therefore, this oil giant has a subtext: Agree to sell A 49% stake in the natural gas pipeline network was awarded to a consortium led by American fund giant BlackRock at a price of US$15.5 billion.
This transaction not only boosted Saudi Aramco’s financial situation. This also shows that the desert kingdom is open to foreign direct investment, which will have more and more demand.
Foreign Direct Investment Saudi Arabia’s revenue of 5.5 billion U.S. dollars last year was only a quarter of that of the United Arab Emirates. Three years later, the country is still working to restore the image damaged by the murder of journalist Jamal Khashoggi by his agent. And it is increasingly worried that global oil and gas investment will rapidly decrease.
Its sovereign wealth fund will spend 40 billion U.S. dollars a year on domestic projects in the next five years. Neom is a “sustainable” megacity, the darling of Crown Prince Mohammed bin Salman (Mohammed bin Salman), with an estimated cost of US$500 billion.
Saudi Aramco raised more than US$29 billion in funds for its listing in Riyadh in 2019, and only 1.7% was sold. At the same time, the company spent US$69 billion to acquire 70% of the Saudi petrochemical business Sabic. It plans to pay another $170 billion in capital expenditures.
Investors have doubts. Citi pointed out that the yield on Saudi Aramco’s 2050 bond is 160 basis points higher than that of equivalent US Treasury bonds and 30 basis points higher than that of international oil companies.
Pipeline transactions show that prestigious foreign investors still care. In fact, BlackRock cares so much that it clearly surpasses its sustainability principles that make such fuss.
CEO Larry Fink trumpets that BlackRock’s funds will help finance Saudi Aramco’s renewable energy projects. A cynic might add that Saudi Arabia’s huge wealth was increased by the rebound in oil prices, another reason the world’s largest fund manager is pragmatic.
Saudi Arabia’s oil and gas infrastructure generates a large amount of reliable cash flow. The question facing other foreign investors is whether to invest funds in Saudi projects that lack such a foundation. That “sustainable” new city came to mind.
The Lex team is interested in hearing more comments from readers. What do you think of this deal? Please let us know your thoughts in the comments section below.