Tom Kirkman

The boy who cried wolf / the leader who cried Aramco IPO. <eye roll>

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Demanding a $2 Trillion valuation is absurd.  This entire Saudi Aramco IPO is a farce.  The boy who cried wolf / the leader who cried IPO.  Enough already.

If there is any Aramco IPO (pretty dang big if there) then I would expect multiple drone attacks from irate neighbors and frenemies to scuttle any chance of success for the IPO.

 

Aramco Wants World’s Largest Wealth Funds In On IPO

Saudi Aramco has approached some of the world’s biggest sovereign wealth funds, including those of Abu Dhabi and Singapore, to participate in the domestic listing, as the Saudis still seek the coveted US$2-trillion valuation for their state oil giant, Reuters reported on Thursday, quoting several sources.

Over the past month, Aramco has noticeably accelerated the timeline for the much-hyped listing expected to be the world’s largest initial public offering (IPO) ever. The US$2-trillion valuation that the Saudis seek has been one of the sticking points—together with the international venue for the listing and concerns over transparency of Saudi reserves—in the IPO that has been delayed several times already.

Saudi Crown Prince Mohammed bin Salman is reportedly still holding fast to the notion that Saudi Aramco should be valued at US$2 trillion, while analysts remain skeptical that the world’s largest oil company is truly worth that much.  ...

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5 minutes ago, Tom Kirkman said:

while analysts remain skeptical that the world’s largest oil company is truly worth that much

Bravo analysts. Maybe it's a Saudi typo and it's Billion ?

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6 minutes ago, DayTrader said:

Bravo analysts. Maybe it's a Saudi typo and it's Billion ?

Careful there.  You might get droned for questioning how much Aramco can sucker investors for.

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https://uk.reuters.com/article/uk-saudi-aramco-ipo-investment-exclusive/exclusive-saudi-aramco-lures-sovereign-funds-to-hit-2-trillion-ipo-valuation-sources-idUKKBN1WB1GD

To achieve the $2 trillion valuation, Aramco needs the initial listing of a 1% stake on the Saudi market to raise at least $20 billion. To beat the record for the world’s biggest IPO, it needs to top Alibaba’s sale of $25 billion of shares. But bankers and company insiders have described the valuation as ambitious, due to a weak outlook for oil prices as deepening climate change activism could dampen investor interest, particularly in the Western world. A further risk to the $2 trillion target was raised by the Sept. 14 strikes that knocked out more than half the production of the world’s top oil exporting nation. Saudi Arabia has been assuring investors it can quickly restore output. Various sources said the kingdom has been busy looking for a more sympathetic investor base in the Middle East and Asia, while also seeking support from the wealthiest Saudi families.

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1 minute ago, DayTrader said:

Various sources said the kingdom has been busy looking for a more sympathetic investor base in the Middle East and Asia, while also blackmailing the wealthiest Saudi families.

fify

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Haha thanks, yep typos all over the place it seems 

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(edited)

I don't think the banks ultimately fall for 2 Trillion valuation..  Nowhere close to 2 Trillion dollar.

Saudi just had two day meeting in which they invited all fifteen investment banks involved. Aramco sent them home with homework. Each bank has to write up a report/valuation. They have to complete and deliver the first draft to Aramco by October 9th.  You know if they dont suck up to Aramco and give a 2 Trillion dollar valuation your done, you're out of deal.

That's not how it works.

Their value comes down to the cash flow. Aramco said reserves 270 billion barrels. An independent oil engineer that worked for Aramco estimates 51 billion barrels.  Then what price do you use in your models ? Will Saudis turn over ownership of reserves to Aramco. That's important.

They haven't chosen the co-manager leads yet. I guess that depends on the grading of the draft reports.

They added two extra banks to the group.  RBC was added as their commodities analyst Helima Croft has been the Aramco cheerleading captain.  You should have seen her at work the Energy Conference Sept 9 thru 12. Helima gushing over Aramco at every opportunity is a bit much.  In my opinion any bank that puts clients into this IPO at 2 Trillion could be at risk for failure of fiduciary responsibility.

MBS is also are pressuring the wealthiest Saudis to participate. I hear mandatory.

Now we hear they are going after countries Sovereign Wealth funds like Bahrain and Singapore to get involved.  

All this without knowing the structure. How many classes of shares ? What is the dividend payout ? Will Aramco still be able to give Saudi government additional, "special dividend" as they did earlier this year ?

Recent firings and hirings at Aramco, Sovereign Wealth Fund, and KSA government ministries were made  give an impression of separation between, government, Aramco and Sovereign Wealth Fund.  You can't separate. How do they reconcile that. They think money managers will invest in that ? Especially when they consider the political and war risk. Especially when they look at the Saudi human rights record. 

Where do they list, what exchange ? They want/need it listed on New York Stock Exchange and London Stock Exchange but don't meet the 10% share float requirement.  I hear they tried to get those exchanges to make an exception but failed. So now must double float to 10% or go to Asia.

All in all this could get nasty. 

IPO predicated on WallStreet "greater fool theory"

 

 

Edited by Jabbar

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(edited)

I don't enough on this to really add anything constructive to the thread, but what it will be interesting to see what happens when the Bell is rang and the hammer falls- First day trading will be a big hitter in the press and I'm sure on this forum.

Lots of variables now, especially after the Houthi/Iran/Hezbolah/and the other 100 myriad of Iranian proxies have a big say in the outcome or not as the case maybe. Perhaps POTUS will slide a sneaky one in with the KSA and deflect the attention from the Dem-on Witch Hunt farce.

Anyway we can only speculate, I guess most will wait to see how the IPO goes, there may be a lot of money to be made on this single IPO for the traders amongst us (Certainly not this non trading person)? 

I actually earn a living..........

Edited by James Regan
DT and Doug forced me to add I work for a living
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7 minutes ago, James Regan said:

Edited 3 minutes ago by James Regan
DT and Doug forced me to add I work for a living

LOL

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I don't think Saudi ARAMCO will audit its oil reserves as it is a state secret. If the IPO does happen, it will be a political deal as @Tom Kirkman  said by blackmailing wealthy Saudi princes to get higher government control over the oil wealth which was earlier distributed to various princes and their families. If at all there will be IPO, it will be done without giving the audit of the exact amount of oil present. No reasonable free market person will accept this lack of transparency. Hence, the IPO will have to get money from political parties only

Nevertheless, theoretically, even if ARAMCO has just 40 billion barrel of oil, its valuation will be 2 trillion dollars. 60 dollar per barrel market rate minus 10 dollar extraction cost is 50 dollars. 40 billion x 50 is 2 trillion. So, 2 trillion dollar is not really a bad price considering that ARAMCO has about 110GBL oil reserves. It gives extra margin to be conservative for any royalty charges involved for oil.

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I'm having trouble squaring the investment banks ostensibly interested in this transaction (hoping to collect their 6% placement fees) with those same banks crowing about their climate bona fides and their Divestment from fossil fuels! 

https://oilprice.com/Energy/Energy-General/The-47-Trillion-Death-Sentence-For-Oil-Gas.html

Quote

International banks, such as Deutsche Bank, ABNAmro, Citigroup, Barclays, and ING, are joining the framework. Under the title of action against global warming, the largest financial institutions now seem to be headbutting oil and gas operators. The impact of activist shareholders and NGOs is sending shockwaves through the sector. If the framework is successfully implemented, the hydrocarbon sector shouldn’t fear unrest in the Middle East, but rather their current financiers.

 

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2 hours ago, kshithij Sharma said:

Nevertheless, theoretically, even if ARAMCO has just 40 billion barrel of oil, its valuation will be 2 trillion dollars. 60 dollar per barrel market rate minus 10 dollar extraction cost is 50 dollars. 40 billion x 50 is 2 trillion. So, 2 trillion dollar is not really a bad price considering that ARAMCO has about 110GBL oil reserves. It gives extra margin to be conservative for any royalty charges involved for oil.

Let's be nice and give them a $3 extraction cost. Even more buffer.

Remember ARAMCO is a concession to the reserves, not the reserves themselves. 

And the tax and royalty must be figured in to the profitability. It's not a flat rate, it adjusts with the price of oil, and requirements of the 95% stakeholder.

ARAMCO bonds make good sense. The 5% listing means everything meaningful decision wise, the production, the sales levels, etc., are on the 95% owner. So you aren't buying reserves and production capabilities so much as, you are investing the House of Saud. 

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In the last 6 years Saudi Arabia had to finance large budget deficits..

Total budget deficit last 6 years till 2018 was 300 billion USD, and in 2019 IMF projections it will be about 8% of GDP that is 70 billion USD.

Lower oil prices and higher population means higher budget deficit . And population growth is 1.5%.

Saudi Aramco "IPO" is just another way to organize money.

Saudi Arabia cannot reveal the real oil reserves.

So I think they will realize the 100 billion goal through issuing Aramco bonds (12 billion already) and offering them to Saudi families (well trained by MbS "money for life" scheme) and to some Asian/Middle East sovereign funds.

Real IPO for me is out of the question.

IPO PR and media frenzy is to advertise modern Saudi Arabia image in the world of finance, it will make further debt issuance easier.

At end of 2019 Saudi Arabia will have about 200 billion of debt, half in USD.

 

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(edited)

6 hours ago, John Foote said:

Remember ARAMCO is a concession to the reserves, not the reserves themselves. 

THIS IS THE MOST IMPORTANT POINT.  Most don't understand this.

I'm sure there is a signed agreement but when things get dire, al-Saud overthrown or Brent stabilizes at 50 dollars and the princes don't like stipend cut that agreement is not worth the paper it's written on.

2 Trillion valuation and don't own the reserves.

JF , a question .

Who owns the reserves ? House of Saud or Sovereign Wealth Fund ?

 

Edited by Jabbar
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KABOOM

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