24/7 Insights

• Aramco has just raised $11.2 billion through a stock offering.
• The new Aramco money will be used for several purposes.

Most Americans have never heard of Aramco (aka Saudi Arabian Oil Group), the massive oil company controlled by the Saudi Arabian government. Aramco is the second largest company in the world, with revenue of over $440 billion. Based on a market cap of $1.7 billion, it is sixth globally, just behind Amazon.com Inc.’s (NASDAQ: AMZN) $1.8 billion.

Aramco holds more oil reserves than any company globally and pumps more oil than rivals, including Exxon Mobil Corp. (NYSE: XOM). Unlike with most publicly traded companies, a single shareholder fundamentally controls it. That happens to be a country and its leader. (Exxon is among the world’s most valuable companies.)

Aramco has just raised $11.2 billion through a stock offering. The Saudi government sold less than 1% of its shares to get the money. Dealogic says it is the largest deal of this year. The transaction is one in which a public company sells additional shares.

What the Funds Are For

The new Aramco money will be used for several purposes. One is to add capital to the Saudi Arabian Public Investment Fund (PIF), which invests in everything from sports franchises to real estate outside the country. The next is to invest in several construction projects in Saudi Arabia. The final major use is Crown Prince Mohammed bin Salman’s huge project. The prince is the country’s de facto leader. He is currently building a massive city called Neom.

Neom describes itself as a massive global economic hub. Its leaders say, “Future-oriented and legacy-free, we’re offering our partners and talent the optimum environment to foster unrestricted thinking and fresh solutions to today’s most pressing challenges.” Essentially, however, it is just a large city.

Unlike most large companies, which are controlled by boards that carefully oversee corporate management, Aramco’s major decisions are made by one person–Crown Prince Mohammed bin Salman. That is what investors are buying into.

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