Aramco General Assembly discusses increasing its capital

Several factors to boost Aramco's share prices in coming months
Aramco General Assembly discusses increasing its capital

Today, Saudi Aramco will hold its Extraordinary General Assembly to vote on the recommendation to increase the company’s capital in distributing free Aramco shares to shareholders, by turning 15 billion riyals ($4 billion) in profits into new capital.

On the 15th of May, Saudi Aramco will announce the financial results for Q1 2022, as well as dividend distribution, amid expectations of achieving strong profits, after the company benefited from the robust gains made by oil prices since the beginning of the year, bolstered by the Russian war on Ukraine.

Aramco had previously announced that the company’s capital would be increased by capitalizing an amount of 15 billion Saudi riyals, and shareholders would be given one share for every 10 shares owned in the company.

Through the capital increase, Aramco aims to maximize total returns to shareholders by distributing sustainable and increasing profits in line with future aspirations and growth in free cash flow, and creating higher value in the long term by investing in various opportunities available to the company.

Aramco has overtaken Apple as the world’s most valuable company, the former benefitting from high oil price revenues, while for the latter, high inflation stifled demand for technology stocks, lowering sales of Apple products.

Aramco traded near its all-time high on Wednesday, with a market capitalization of about $2.43 trillion, surpassing Apple for the first time since 2020. The iPhone maker fell 5.2 percent to close at $146.50 per share. This gives it a valuation of $2.37 trillion, according to Bloomberg.

Despite their importance and positive repercussions for Aramco’s profits, high oil prices are exacerbating the rising inflation that is forcing the Federal Reserve to raise interest rates at the fastest pace in decades. Thus, the higher the rates, the more investors discount the value of future revenue streams from technology companies and lower their stock prices.

This path looks like it will last a long time. The Federal Reserve is on course to raise interest rates by at least another 150 basis points this year, and with the uncertainty of a solution to the Russia-Ukrainian conflict, it may take time for technology to regain its hegemony.

In the midst of this scene, investment funds focus these days on buying stocks with a high market value, such as “Aramco” shares.

In addition, the increase in Aramco’s free shares helped support the increase in its share price, while Saudi’s government granting 4 percent of its ownership to the Public Investment Fund (PIF) increased the free float to 6 percent, which represents 21 percent of the market index.

Aramco had announced the granting of profits for the year 2021, which reached the highest level since its inclusion in the Saudi financial market, due to the rise in oil prices, and the increase in profit margins within refining and chemicals operations.

The company’s board of directors announced the free Aramco shares for the first time, after net profits amounted to about 412.4 ($110 billion) for the year 2021, a growth of 124.4 percent over 2020.