Saudi Arabia Transfers Aramco Shares Worth $80 Billion to Wealth Fund

Stung by low energy prices in recent years that forced Saudi Arabia to cut investments and subsidies at home, the government under Crown Prince

Mohammed bin Salman,

the kingdom’s day-to-day ruler, is attempting to widen its sources of non-oil income in a hurry. The risk of deeper economic trouble as the world pivots away from hydrocarbons has accelerated that push. High oil prices currently are helping finance some of those plans.

The Saudi government, which will remain the largest shareholder in Aramco with a stake of more than 94%, has sought to monetize the country’s massive oil assets and use the proceeds to invest in industries outside of oil as part of Prince Mohammed’s plan to restructure the economy by 2030.

To help meet that goal, Prince Mohammed has tasked PIF to invest in companies and industries untethered to hydrocarbons. The government had also transferred the $29.4 billion it raised from Aramco’s initial public offering in 2019 on the Saudi stock exchange to the PIF to deploy.

PIF is planning to use the Aramco stake as collateral to raise lower-cost debt in the international markets, people familiar with the wealth fund’s plan said Sunday. But other options remain open, they added.

Besides raising debt, analysts say PIF could sell the shares in the market in phases or in chunks to strategic investors. The wealth fund has multiple options to monetize the Aramco stake and, unlike the government, can be more discreet with its fundraising plans, they added.

Earlier this month, people familiar with Aramco’s strategy said the kingdom has restarted plans to list more shares of Aramco, the world’s most valuable oil company, with an ambition to sell as much as a $50 billion stake, which at current valuations would be 2.5% of the company. The listing of shares would be by far the largest in the history of capital markets and could prove difficult to pull off.

The stake-sale effort is still in the planning stage, and could still be delayed or changed, the people said. Riyadh has floated several different plans over the years aimed at raising funds via Aramco, some of which have ultimately faltered or been abandoned.

The share transfer to PIF will help bolster the fund’s strong financial position and its high credit rating in the medium term, according to the government. Ratings agency Fitch in February assigned PIF an “A” rating, while Moody’s gave it an “A1” rating, as the fund prepares to tap the international debt markets.

The fund started raising bank debt in 2018 with an $11 billion facility, followed by a $10 billion loan in 2019 that was repaid a year later. Its governor,

Yasir al-Rumayyan,

said in September 2021 that PIF was working with

BlackRock Inc.

on an environmental, social and governance framework and planned to issue its debut green bonds soon.

Meanwhile, the wealth fund will also start receiving dividends from Aramco and can market itself as a bigger fund while competing with others for global assets.

The fund, which had assets under management of about $150 billion in 2015, has used the cash it has received or raised since then to invest in businesses as diverse as electric-vehicle manufacturer Lucid Motors Inc.,

Citigroup Inc.

and the Premier League soccer club Newcastle United. It invested billions in

SoftBank’s

Vision Fund.

It has also played a more active role in the global markets after receiving $40 billion from the kingdom’s reserves in early 2020. It plans to invest another $10 billion in listed stocks this year, according to people familiar with the fund’s plan.

Some PIF officials, however, have privately questioned the fund’s strategy, given its mixed record investing internationally and its struggles to attract significant foreign capital to help finance domestic projects.

The wealth fund is seen by the government as the engine driving the kingdom’s economic transformation, with a five-year strategy to inject at least $40 billion a year into the local economy. But it isn’t clear if any of the international companies that PIF has invested in are looking at the kingdom for expansion. PIF doesn’t publicly release its financial reports.

Foreign investment in Saudi Arabia has remained stubbornly low and some companies are scaling back their operations or delaying promised expansion plans. Foreign direct investment into Saudi Arabia was $5.4 billion in 2020, less than half the level of a decade ago and well below the $19 billion that the country had targeted. It was on track to top $6 billion in 2021 based on data through the third quarter. That excludes the $12.4 billion sale of a stake in a Saudi pipeline company to foreign investors.

Some foreign investors also became cautious on their plans in the kingdom after men working for Prince Mohammed killed dissident journalist Jamal Khashoggi in late 2018. Riyadh says the crown prince wasn’t involved in the killing.

The Saudi investment ministry has said interest in the country remains high, pointing to a 250% annual increase in new investor licenses in 2021.

The Saudi government is pushing ahead with multibillion-dollar plans to build a spate of new cities, betting these projects would attract foreign investment and boost domestic consumption. The giant projects are designed to spawn industries such as tourism and entertainment that haven’t existed before in cloistered Saudi Arabia.

They include a futuristic city-state called Neom in the country’s remote northwest Tabuk province, a sports and entertainment city outside Riyadh, luxury tourism resorts spread across an archipelago of pristine Red Sea islands and an ancient Arabian trading post turned wildlife reserve called al-Ula.

Aramco said the latest deal is a private transfer between the kingdom and the PIF, and Aramco isn’t a party to the transfer and didn’t enter into any agreements or pay or receive any proceeds from it.

The transfer doesn’t have an impact on Aramco’s operations, strategy or dividends-distribution policy, it added.

—Stephen Kalin and Rory Jones contributed to this article.

Write to Summer Said at summer.said@wsj.com