Saudi Aramco IPO

Saudi Aramco IPO

Postby winston » Wed May 11, 2016 8:02 am

Thanks, Saudis, But No Thanks

By Rodney Johnson

Saudi Arabia has a problem. The country’s wealth is completely dependent on oil revenue, which state officials use to bribe the population into submission.

But with the price of oil hovering in the mid-$40s, after falling from over $100 in recent years, the Saudis have been dipping into their national piggy bank to make good on their social promises.

They need oil prices over $60 to balance their budget, but that might not be in the cards anytime soon. Looking at a future full of American fracking, country officials decided they needed to change course.

So, they came up with a plan.

To break the country’s dependence on oil, it will invest in other technologies and industries, retraining its working population and setting the country on a course for the 21st century.

To finance this transition, the government will sell shares in its national oil company to the public. Most likely, it’ll list shares on the national stock exchange and another in a major hub like New York or London.

When shares of the oil company, Aramco, hit the market, it could cause a feeding frenzy.

A word of advice – don’t take a bite.

Aramco could be valued between $2 trillion and $3 trillion. The Saudis are talking about selling perhaps 5% of the company, which would raise between $100 billion and $150 billion. For their investment, shareholders would get no control, no visibility, no assurance that company officials would work on their behalf, and a history full of self-interested dealings that are meant to benefit Saudis and no one else.

Thanks, but no thanks.

For those not versed in the history of Middle Eastern oil exploration, ARAMCO stands for Arabian American Oil Company. I won’t bore you with all the background details, but a few milestones are noteworthy.

In 1933, Saudi Arabia sold a concession to Standard Oil allowing the company to explore for oil. It took five years, but eventually they found it, and started paying the Saudis a set fee per unit of oil produced.

During the 1940s, other oil companies joined the group, and several major oil fields were found.

Saudi Arabia decided it wasn’t getting paid enough after western energy companies started cutting deals with other countries in the area, like Iran. So, in 1950, Saudi officials persuaded Aramco to split the profits 50/50 between the western firms and the Saudi government. By “persuaded,” they threatened to nationalize the company’s assets. Some deal.

Production continued during the 1950s and 1960s. OPEC formed in 1968 as several oil-producing countries came together after geopolitical tensions bled into their oil operations. By 1973, the Saudi government was again dissatisfied with its profit-sharing. Now, they wanted ownership.

The government again “persuaded” the companies of Aramco to sell 25% to the Saudi government. The share was increased to 60% after the 1973 Israeli Middle East War, and then pushed to 100% by the mid-1970s.

Now, the Saudi government didn’t just take the company. They paid for the shares, which in 1973 terms came to about $2.7 billion. That equates to roughly $15 billion today.

Of course, at the time, the proven oil reserves in Saudi Arabia were just 93 billion. Today they have 260 billion, so Aramco should be worth a lot more.

But how much more? If the company controls three times the amount of reserves, shouldn’t today’s value be three times what they paid, or $45 billion?

Hmmm. Something doesn’t add up.

If the company is worth $2.5 trillion today as Saudi Arabia claims, then it should have been worth a third of that, adjusted lower for inflation, in 1973, given the difference in proven oil reserves. That would put the fair value back then at $155 billion. And yet the Saudis paid just $2.7 billion by threatening nationalization. That’s a heck of a negotiation strategy!

Fast forward to the present, when the country hopes to end its reliance on oil in its national economy. Granted, this will be exceptionally difficult, given that the Saudis produce little other than oil and sand.

But that’s their goal. And to do it, they want to raise money from private investors, who will end up owning part of the very oil company that the government is trying to de-emphasize.

If the Saudis aren’t successful, and oil remains by far the largest contributor to the economy, what happens to shareholders if oil prices are stuck at low levels?

Do they get anything? Dividends? Anything? I can’t see the Saudis joyfully shipping money out of the country when they are bleeding cash.

And if the Saudis are able to end their reliance on oil, then what? Will they keep investing in new technology and exploration to keep Aramco growing? Or will private investors find themselves holding onto an asset in long-term decline?

Given their history, as well as their goals, this looks like an investment that no one could love.

When it hits the market, expect share prices to move with the price of oil for a little while. But when shareholders find themselves unable to get straight answers from Aramco officials, and then see the kingdom siphon off assets for other projects, chances are these shares will be relegated to an unloved corner of the market.

Source: Economy & Markets
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Re: Saudi Aramco IPO

Postby winston » Thu May 26, 2016 9:20 am

Saudi Aramco said to appoint JPMorgan, HSBC for debut bond sale

Saudi Aramco, the world’s largest oil exporter, is working with JPMorgan Chase & Co., HSBC Holdings Plc and Riyad Bank on the company’s first sale of Islamic bonds, people with knowledge of the matter said.

The three banks will help the Saudi oil company set up a riyal-denominated sukuk program, with the first sale potentially taking place this year, the people said, asking not to be identified as the information is private.

The size of the first sale hasn’t yet been determined and other banks could be appointed before it takes place, the people said.

Aramco is also considering setting up a dollar-bond program, the people said.

Saudi Aramco is at the center of a plan to wean the country’s economy off its dependency on oil revenues. The government outlined plans to sell a less than 5 percent stake in Aramco to the public and transfer ownership of the rest of the company to the Public Investment Fund, transforming it into a $2 trillion sovereign wealth fund.

Once completed, the move will mean that Saudi Arabia derives most of its revenue from investments, rather than oil sales, Deputy Crown Prince Mohammed bin Salman told Bloomberg in April.

The company started holding talks with banks about selling Islamic bonds earlier this year, people with knowledge of the matter told Bloomberg in February.

HSBC, JPMorgan, Riyad Bank and Saudi Aramco declined to comment. The closest Saudi Aramco has come in the past to selling debt is a 3.75 billion-riyal ($1 billion) sukuk issued by Saudi Aramco Total Refining & Petrochemical Co., a joint venture with France’s

Total SA known as Satorp. In 2013, another Saudi Aramco joint venture, Sadara Chemical Co. with Dow Chemical Co., raised 7.5 billion riyals through a sukuk to finance a chemicals complex.

Source: Deal Street Asia

http://www.dealstreetasia.com/stories/s ... -246495057
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Re: Saudi Aramco IPO

Postby winston » Fri May 27, 2016 7:54 am

Saudi Aramco boosting market share as it prepares for listing

The company is finalizing its proposals and will present them to its Supreme Council soon, which could see part of Aramco publicly listed by 2017-18.


As part of Aramco's market share push, the company plans to raise its total refining capacity - both inside the kingdom and abroad - to 8 million-10 million barrels per day from around 5.4 million bpd now.


Source: Reuters

http://www.thestar.com.my/business/busi ... r-listing/
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Re: Saudi Aramco IPO

Postby winston » Thu Jun 09, 2016 9:35 am

Saudi Aramco listing lures i-banks with prospects of game-changing deals

Source: Deal Street Asia

http://www.dealstreetasia.com/stories/s ... -246495057
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Re: Saudi Aramco IPO

Postby winston » Wed Jan 25, 2017 2:14 pm

Saudi Aramco Invites M Stanley, HSBC for Proposals as Listing Advisor: Report

As Reuters cited sources, Saudi Aramco has invited banks, including Morgan Stanley and HSBC HOLDINGS (00005.HK), for proposals to be Aramco's IPO advisor.

It is expected that the advisory bank(s) will be chosen by the end of 2017.

Amin Nasser, CEO of Aramco, said the company planned to list in 2018 for the flotation of up to 5 percent of the company.

Source: AAStocks Financial News
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Re: Saudi Aramco IPO

Postby winston » Thu Feb 09, 2017 7:47 am

by behappyalways:-

Singapore Said to Plan Slew of Incentives to Lure Aramco Listing
https://www.bloomberg.com/news/articles ... co-listing


snagging-aramco-won-t-be-easy-singapore
https://www.bloomberg.com/gadfly/articl ... -singapore
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Re: Saudi Aramco IPO

Postby winston » Sat Feb 25, 2017 1:24 pm

Aramco not worth as much as Saudi Arabia says?

The Saudi government is preparing an IPO for 2018 or 2019 for a small portion of its state-owned oil company.

Saudi Aramco, government officials say, is probably worth around $2 trillion, which would make it by far the most valuable company in the world. However, that could be vastly overstating the case.

Consulting firm Wood Mackenzie says the core business of Aramco is only worth $400 billion.

If that estimate is more accurate, the IPO would earn the government only a fraction of the $100 billion it hoped it would raise by selling off 5 percent of the company.

There is a great deal of uncertainty, given the secrecy with which Aramco treats its operations and assets, and the discrepancy in estimates is illustrative of the complexity of taking Aramco public.

Source: Oil Price Intelligence
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