Report: Saudi Arabia plans to appoint Goldman Sachs, Citigroup, and other firms to handle the issuance of Saudi Aramco stocks, potentially raising $20 billion in funds.

On Thursday, according to sources, Saudi Arabia is preparing to hire banks including Citigroup, Goldman Sachs, and HSBC to handle the secondary offering of Saudi Aramco's stock. The Saudi authorities are also in negotiations with other banks to form an advisory team for the listing of Saudi Aramco, and the composition of the advisory team may still change.

Saudi Aramco's current market value is approximately $2 trillion. The fundraising size for this offering is expected to be around $20 billion, making it one of the largest offerings in recent years. The related transactions may take place in the coming weeks. However, the final timing of the offering and the number of shares the Saudi government will sell have not been finalized. The offering may also be postponed.

Saudi Aramco, Citigroup, Goldman Sachs, and HSBC have all declined to comment on the above news.

Saudi Crown Prince Mohammed bin Salman is pushing forward with ambitious plans to diversify the Saudi economy, but this has put the Saudi government in a fiscal deficit. Therefore, the restart of the Saudi Aramco share sale is aimed at supporting the country's economic transformation.

Some Wall Street banks also participated in Saudi Aramco's IPO in 2019. Saudi Aramco raised $25.6 billion in its IPO at the end of 2019, making it the largest IPO in the world, and later sold more shares, raising the total funds raised to $29.4 billion. However, in global terms, the revenue earned by Wall Street banks from this IPO was relatively modest. They are now continuing with the follow-on offering as it helps them gain other business in Saudi Arabia.

The issuance of the new Saudi Aramco shares poses certain challenges. The Saudi government's valuation expectations are higher than those of its peers, and Aramco's price-to-earnings ratio is higher than that of Shell, BP, ExxonMobil, and others, which has deterred many international companies, even though Saudi Aramco has introduced new mechanisms to increase dividends and attract more investors and improve liquidity. In this situation, this IPO will rely more on local retail investors and wealthy family offices.

The Saudi government directly owns approximately 90% of Saudi Aramco's shares, with another 8% held by the PIF fund. The fund is chaired by Crown Prince Salman and is the world's largest sovereign wealth fund in terms of global spending last year. Many top asset management companies around the world have invested in Aramco, in part because of Aramco's weight in the Saudi stock index.

A few weeks ago, Saudi Arabia unexpectedly made a U-turn and canceled Saudi Aramco's production expansion plan. Saudi Aramco announced that it had received instructions from the Saudi Ministry of Energy to keep its maximum sustainable capacity (MSC) at 12 million barrels per day, no longer expanding to 13 million barrels per day.