Weekly GCC news to 31 May

• Candidates for the Iranian presidency include hardliner Saeed Jalili and former speaker Ali Larijani.
• Saudi Arabia issued $5bn in dollar sukuk and extended the maturity profile for $17bn in riyal sukuk.
• Aramco announced a long-awaited secondary equity sale that could raise up to $13bn. [see (1) below]
• PIF’s Alat unit is investing $2bn in China’s Lenovo, which will manufacture computers in KSA.
• King Salman has recovered from his recent illness and chaired a virtual cabinet meeting.
• Adnoc’s capacity may reach 5m b/d by late 2025, ahead of schedule, increasing pressure over the UAE’s OPEC+ quota. [see (2) below]
• The UAE president, Bahrain’s King and GCC foreign ministers attended a summit in China.
• The UAE signed a CEPA with Korea, during a visit by MBZ, expanding on a recent GCC FTA.
• Investment Corporation of Dubai profits soared by 68% to a record $16.6bn.
• Moody’s upgraded DEWA by two notches to A3, suggesting improvement in Dubai’s implicit rating.
• QatarEnergy signed a urea supply deal with Koch and reached FID on Brazil’s Sepia-2 oil field.
• Kuwait approved a new tenders committee and there were signs of progress on rail and port plans.
• Oman’s cabinet approved a new industrial strategy aiming to triple manufacturing by 2040.
• $1.2bn in syndicated loans was secured to refinance Bahrain’s Al Dur IWPP.

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Here are two brief snippets from the report:

(1) Aramco secondary share sale

• A long-awaited Aramco follow-on equity issuance is happening next week (Mon-Wed), selling a 0.64%-0.7% stake to raise up to $13bn, depending on the pricing, which will be between SAR26.7-29, compared with the original IPO price of SAR32 (albeit effectively SR26.4 for Saudi nationals who held long enough to receive bonus shares) (Aramco, FT, WSJ).
• There has been talk about a follow-on sale since soon after the 2019 IPO, with the main questions having been timing and whether it would involve a listing abroad. The absorption capacity of the domestic market, including international institutional investors with access to it, is part of the reason for the relatively limited size of the offering.
• It would increase the free float by over a third to as much as 2.5% and reduce the sovereign’s holding to about 81.5% (aside from 16% held by PIF).
• Before the announcement, Aramco’s stock was trading about -5% below its 2019 IPO price, whereas many peers in the oil sector have risen significantly since then, for example, Chevron up 38% and Exxon 60%. This year the stock has given up gains that followed its announcement of special performance dividends, in part because of the extension of OPEC+ cuts, something that private oil peers do not have to deal with.
• While the financing is substantial and could help with the deficit and project financing, it does not mitigate the need for continued debt financing, as shown by this week’s $5bn sukuk issuance, which came on top of $12bn in bond issuance in January and together cover four-fifths of the budgeted deficit, even before local sukuk are taken into account.

(2) Adnoc could reach 5m b/d capacity next year

• Adnoc’s oil capacity, which has already reached 4.7m b/d, is expected to hit its 5m b/d target about a year ahead of schedule, possibly by late 2025 (BB).
• This compares with its current OPEC+ quota of just 2.9m (or 3.2m excluding two rounds of “voluntary” cuts over the last year). This means that its share of the burden of OPEC+ cuts is far higher in relative terms than other countries, even Saudi Arabia.
• It is hard to see the UAE’s participation in OPEC+ making sense for much longer unless its quota for 2025 is very substantially hiked, probably by at least 1m b/d, so that burden sharing is more equitable. It might accept a phased process for hiking if other OPEC+ states are not willing to take on much more of the burden and if the oil market call on the cartel is not sufficient to absorb it.
• We are unlikely to get an answer in this Sunday's OPEC+ because the process of independently assessing countries’ capacities, initiated by OPEC+ a year ago with a view to setting 2025 quotas, is not scheduled to be completed until the end of June.