Middle East Equity Issue: Saudi Aramco’s SR46.3bn follow-on
Long time in the making
It’s not often an issuer gets to set records twice, but the SR46.3bn (US$12.35bn) follow-on by oil giant Saudi Aramco achieved exactly that as the largest Middle East secondary equity issue, adding to its largest IPO record for its SR110.4bn in 2019.
The IPO had been sold to domestic investors and the follow-on provided an opportunity to bring international investors in to the seasoned shares.
"Being able to place US$12bn in the market is a success we never thought we’d be able to do," said Rudy Saadi, head of MENA ECM at joint global coordinator Citigroup. "We had two years of marketing and non-deal roadshows and investors always turned up. We asked 'would you buy in the secondary market?' and the answer was 'yes but we need more liquidity'."
Citi was appointed as global coordinator alongside SNB Capital before being quickly joined by Goldman Sachs and HSBC, followed by Bank of America, JP Morgan and Morgan Stanley with the syndicate eventually comprising 15 local and international bookrunners. Moelis advised.
Throughout the two years regular non-deal meetings were held to sustain investor interest in the company amid a backdrop of intense media speculation.
A changeable geopolitical environment also made choosing a final window difficult with an exchange of missiles between Iran and Israel in April delaying the launch.
“In the region people understand this was not an issue but the internationals didn’t so we recommended a second window a month later,” said Saadi.
On May 23, a one-week wall-crossing began, involving more than 100 investors ahead of the public announcement on May 30, with the extensive groundwork enabling formal coverage within a few hours of books opening on June 2.
A clear aim of the follow-on was to address the lack of international allocations from Aramco’s IPO and management conducted a global roadshow across Riyadh, London and New York.
Another boost came as the increased free-float resulted in a rebalancing of MSCI indices driving significant passive demand.
Despite representing around 122 days' trading, shares priced at a relatively tight 6% discount and held above issue following the sale, enabling full exercise of a 10% greenshoe.
In line with objectives, more than half the book went to international accounts while average three-month daily traded volumes have risen from 11m shares as of May 30 to around 15.9m in mid-December.
Aramco serves as a valuable test case at scale for secondary Middle East offers and, alongside successful accelerated offers in Adnoc Drilling last year, a route for greater international holding of stocks in the region.
“As long as liquidity remains, foreign interest is growing,” said Amir Riad, head of investment banking at bookrunner BSF Capital.
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