Aramco manages a proven oil reserve of 260 billion barrels (Saudi Press)
RIYADH -
In a step aimed at strengthening the Saudi economy and diversifying its sources of income away from exclusive reliance on oil as a primary source, Saudi Arabia announced a few days ago the transfer of 8% of the shares of the giant Aramco company to the Public Investment Fund, one of the largest sovereign wealth funds in the world.
This step comes within the framework of the Kingdom's Vision 2030, which aims to achieve sustainable development for the Saudi economy.
Aramco is a Saudi energy company that manages a proven oil reserve amounting to 260 billion barrels, and another of natural gas estimated at 288 trillion cubic feet, and it is considered the largest oil exporting company in the world.
Last Thursday, Saudi Crown Prince Mohammed bin Salman announced the completion of the transfer of 8% of the total shares of Saudi Aramco to portfolios of companies wholly owned by the Public Investment Fund, bringing the percentage of state-owned shares after the transfer process to 82.186% of the company’s total shares.
The Saudi Crown Prince considered that the transfer of ownership of part of the state’s shares in Aramco comes within the framework of continuing the Kingdom’s initiatives aimed at strengthening the national economy in the long term, diversifying its resources, and providing more investment opportunities, pointing out that the transfer process contributes to maximizing the assets of the Public Investment Fund and increasing... Its investment returns.
The Saudi Crown Prince confirms that the Public Investment Fund is continuing to launch new sectors (Saudi Press)
Internal and external investments
Through the process of transferring shares, Saudi Arabia seeks to achieve a number of goals, the most important of which are:
Strengthening the independence of the Public Investment Fund.
Increasing the capital of the Kingdom's sovereign fund.
Diversifying sources of income for the Saudi government.
Supporting the Kingdom’s Vision 2030 plan.
The process of transferring shares will also greatly affect the Public Investment Fund through:
Capital increase: The Public Investment Fund will become one of the largest sovereign wealth funds in the world, with its capital increasing to more than $1.5 trillion.
Increased investments: The additional capital will allow the Public Investment Fund to increase its investments in various sectors, inside and outside the Kingdom of Saudi Arabia.
Enhanced independence: The transfer of shares will allow the Public Investment Fund to implement its investment strategies more independently, without the need for government approval for every deal.
Although the destination of the financial resources resulting from the transfer of shares has not been officially announced, it is expected that the financial resources resulting from the transfer of shares will be used to finance projects in the Saudi Vision 2030 plan, which include infrastructure, industrial, tourism, educational, and health projects.
The Public Investment Fund will also invest in promising sectors such as technology, renewable energy and healthcare. In addition, part of the financial resources will be invested abroad to diversify the investment portfolio.
The contribution of the Public Investment Fund to the asset management sector in the Kingdom is of great importance.
From increasing the number of asset managers to developing the local asset management sector, the Fund will continue to support this sector with the aim of strengthening the local economy.
- Public Investment Fund (@PIFSaudi) March 6, 2024
Important projects
Commenting on this step, Heba Al-Fuhaid, professor of economics at King Saud University, says that the process of transferring shares is a positive step that will help diversify the sources of income for the Saudi government and support the Kingdom’s Vision 2030 plan, expressing her belief that the Public Investment Fund will use financial resources effectively to finance important projects. In various sectors.
Al-Fuhaid believes, in an interview with Al Jazeera Net, that the process of transferring shares will enhance the independence of the Public Investment Fund and allow it to implement its investment strategies more effectively, pointing out that the Public Investment Fund will use financial resources intelligently to finance various projects.
The Saudi Academy stresses that the process of transferring shares is an excellent and necessary step for the Saudi economy, especially with the presence of a giant company like Aramco, considering that this transfer is necessary to maintain Saudi Arabia’s economic growth rates, and this step will also lead to strengthening the economy and achieving a qualitative leap in vital sectors, It will also contribute to attracting foreign investors, strengthening the company's financial position and benefiting from the bond and stock market.
Al-Fuhaid added that this specific timing for announcing the share transfer is a smart opportunity to strengthen the company’s financial position and target European banks that are looking for active investments, noting that the Saudi economy is progressing and achieved the highest growth rate among the G20 countries last year.
His Highness the #Crown_Prince announces the completion of the transfer of (8%) of the total shares of Saudi Aramco to portfolios of companies wholly owned by the Public Investment Fund. https://t.co/Yia1XmZnbE #SPA pic.twitter.com/N4kK8nEbvZ
- SPA Royal News (@spagov) March 7, 2024
Enormous financial resources
For his part, Saudi economic analyst Mohammed bin Abdullah Al-Rasheed believes that transferring Aramco shares to the fund is an important strategic step that strengthens the fund’s position as a strong investor in the company, pointing out that the fund can benefit from its direct and indirect ownership of Aramco shares, which amount to 38.72 billion shares, To enhance his portfolio and increase investment returns.
Al-Rasheed expected, in an interview with Al Jazeera Net, that the transfer of shares would have a positive impact on Aramco’s stock in market indices such as MSCI and FTSE Russell for emerging markets, and the amount of free shares traded in the market would increase. This enhances the company's attractiveness to investors and contributes to increasing its market value.
He added, "We noticed last year, when 4% of Aramco's shares were transferred to the fund, that the share price rose by 9.5% over three consecutive days, and this reflects the great confidence and optimism that the market has regarding that step."
The Saudi economic analyst confirmed that transferring part of the ownership of state assets to the fund contributes to strengthening its assets and improving its investment returns, as the market value of the fund will increase, and this strengthens its position as one of the largest sovereign wealth funds in the world, pointing out that the Saudi Public Investment Fund accounted for about a quarter of what it spent. Sovereign wealth funds around the world last year, amounting to approximately $124 billion.
He explained that these enormous financial resources will become part of the portfolio of the Public Investment Fund, which is the main institution responsible for investing public funds and directing them in the Saudi economy, expecting this step to play an important role in enhancing the Kingdom’s competitiveness and providing new investment opportunities.
He pointed out that the fund has great investment opportunities inside and outside the Kingdom, stressing that the main trend will be towards internal investments in vital sectors such as infrastructure, national industries, and technology.
It is noteworthy that the Saudi Crown Prince had announced in April of last year the completion of the transfer of a 4 percent stake in Aramco shares from state ownership to a company affiliated with the Public Investment Fund (Sanabil Investment), and before that in February of 2022 he also announced the transfer of 4 percent. percent of Aramco shares to the fund.
Source: Al Jazeera + Saudi Press