Aramco Raises $25.6B in World's Biggest IPO

[ceo_energemsier + 1,818]

Aramco Raises $25.6B in World's Biggest IPO

 

(Bloomberg) -- Saudi Aramco raised $25.6 billion from the world’s biggest initial public offering, closing a deal that became synonymous with the kingdom’s controversial crown prince and his plans to reshape the nation.

The state-owned oil giant set the final price of its shares at 32 riyals ($8.53), valuing the world’s most profitable company at $1.7 trillion. It received total bids of $119 billion.

For Crown Prince Mohammed Bin Salman, pulling off the sale could help get his ambitious plan to overhaul the economy back on track. It’s been derailed by problems at home, including the backlash against his purge of the elite, and abroad by the outrage over the murder of Washington Post columnist Jamal Khashoggi and the war in Yemen.

But the deal ended up being very different from what the prince had envisaged when he first floated the idea in 2016 with an ambition to raise as much as $100 billion. Aramco offered just 1.5% of its shares and opted for a local listing after global investors balked at its hopes of valuing the company at $2 trillion.

Instead, Aramco relied heavily on local investors and funds from neighboring Gulf Arab monarchies. In the offering for individuals, almost 5 million people applied for shares. The institutional tranche closed on Wednesday and attracted bids totaling 397 billion riyals.

The kingdom’s richest families, some of whom had members detained in Riyadh’s Ritz-Carlton hotel during a so-called corruption crackdown in 2017, are expected to have made significant contributions. Global banks working on the deal were sidelined after Saudi Arabia decided to focus on selling the shares to local and regional investors.

Still, Aramco will become the world’s most valuable publicly traded company once it starts trading, overtaking Microsoft Corp. and Apple Inc. The pricing was at the top of the marketed range of 30 to 32 riyals. The mean valuation estimate from institutional investors surveyed by Sanford C. Bernstein & Co. was for $1.26 trillion, it said in a note Thursday.

The deal opens up one of the world’s most secretive companies, whose profits helped bankroll the kingdom and its ruling family for decades, to investors and Saudi individuals. Until this year, Aramco had never published financial statements or borrowed in international debt markets.

It will also mean the company now has shareholders other than the Saudi government for the first time since it was nationalized in the late 1970s.

Saudi Arabia had been pulling out all the stops to ensure the IPO is a success. It cut the tax rate for Aramco three times, promised the world’s largest dividend and offered bonus shares for retail investors who keep hold of the stock.

Goldman Sachs Group Inc., acting as share stabilizing manager, has the right to exercise a so-called greenshoe option of 450 million shares. The purchase option can be executed in whole or in part at any time on or before 30 calendar days after the trading debut. It could raise the IPO proceeds to $29.4 billion.

Funds from the sale will be transferred to the Public Investment Fund, which has been making a number of bold investments, plowing $45 billion into SoftBank Corp.’s Vision Fund, taking a $3.5 billion stake in Uber Technologies Inc. and planning a $500 billion futuristic city.

The sale is the first major disposal of state assets since Prince Mohammed launched a much-touted plan to reduce the economy’s addiction to oil revenue in 2016.

The last major government privatization, the 2014 IPO of National Commercial Bank, received $83 billion in subscriptions from investors.

 

[canadas canadas + 136]

How can one lose when investors are taking risks for a very small percentage of company ownership without having any real control over it?  For some companies, issuing stock is very much like printing their own money.  

[Tom Kirkman + 8,860]

5 hours ago, ceo_energemsier said:

The deal opens up one of the world’s most secretive companies

Nope.  Nonsense.  I'll believe it when I see it.  It would be amazing to see independently verified details of Aramco's finances and oil reserves.  And I am not talking about bribed third party "auditors" spouting off Aramco's party line hooey.

I am talking about actual, verified, independent facts that can be examined, poked, prodded, and questioned.

Since Aramco basically cannot comply with Western norms for transparency, the trading of Aramco stocks will remain far away New York and London stock exchanges.  

[John Foote + 1,135]

11 hours ago, Tom Kirkman said:

It would be amazing to see independently verified details of Aramco's finances and oil reserves. 

I suspect nobody really knows, including anyone at Aramco. Information is so sequestered, people know little pieces, but putting it all together is not possible. I was good friends with a reservoir and he absolutely had accurate opinions on the section he managed, but was essentially clueless to the overall. And that is by design.  

Another fundamental problem is the rule of law in KSA. There are laws, but in the end the rule is the King, not law.  Fundamentally, an a true absolute monarchy, perhaps the only one in the world, the whim of the King can determine the law and he cannot be questioned, and dissent is a capital offense. There is no shortage of places ruled by an individual, but there is typically a veneer even dictators claim to abide by. 

Maybe North Korea, but with apologies to President Trump, Fox, CNN, and Koreans, North Korea doesn't matter.  They are too broke to matter. They just have a few large bombs. btw, I love Korea, and have lived in the south twice. But as a military force, not a worry. The carnage in Seoul and the first few days would be tragic. Samsung matters far more than all of North Korea. 

[John Foote + 1,135]

https://bv-aramco.bvpredictions.com/?p=113

The Reuters write up is actually pretty decent.

[canadas canadas + 136]

Without GHAWAR, ARAMCO is nothing and GHAWAR has been going on strong for over 70 years now.  Maybe they are trying to cash in their chips before they fold.  Thus, sell the company off through issuing stock so that others get to hold the bag just in case.  Pump and dump?

Edited December 12, 2019 by canadas canadas

[kshithij Sharma + 78]

20 hours ago, canadas canadas said:

Without GHAWAR, ARAMCO is nothing and GHAWAR has been going on strong for over 70 years now.  Maybe they are trying to cash in their chips before they fold.  Thus, sell the company off through issuing stock so that others get to hold the bag just in case.  Pump and dump?

No, Ghawar is almost down and is in EOR for 10 years. Saudi finds that using bigger oil fields for longer time gives more oil yield- upto 60% and hence used up Ghawar first. Other oil fields give oil upto 45-55% depending on their size. Now, with Ghawar depleting, they have started to move to smaller fields while continuing exploiting ghawar to its last drop. Saudis have 35% oil in ghawar but there is other 65% in other fields. Saudis have still plenty of oil left to go strong till 2050

[John Foote + 1,135]

1 hour ago, kshithij Sharma said:

Saudis have still plenty of oil left to go strong till 2050

Absolutely, but the sub $3 lift cost is a myth. The Preminian was declared dead back in the early 70s. 

The world won't run out of oil in the next 100 years. 

[kshithij Sharma + 78]

3 minutes ago, John Foote said:

Absolutely, but the sub $3 lift cost is a myth. The Preminian was declared dead back in the early 70s. 

The world won't run out of oil in the next 100 years. 

No, Permian basin was never dead. USA simply put environmental restriction and stopped the oil production in the shale fields and also reduced oil production in conventional fields to conserve oil in 1970s. After USA secured petrodollar deal with Arabs, USA got free supply of oil in return for military assistance to Islamic cause. So, USA found no reason to waste its oil reserves and hence put a lid on the production. But that was never because the oil fields were considered as depleted.

There is enough oil for next 20 years at current consumption. In case of middle east and Russia, there is 30 years of production left at current production rate.

[John Foote + 1,135]

7 hours ago, kshithij Sharma said:

No, Permian basin was never dead. USA simply put environmental restriction and stopped the oil production in the shale fields and also reduced oil production.

Don’t fool yourself about a grand USA master plan. It was cheaper, and more profitable, to buy Middle East oil. Even after ‘73 when the Saudis learned they had been getting shorted on what they got. Aramco then was American. 
 

Clearly KSA and to a lessor but significant extent Iran, used the oil money for Islamic fundamentalism, but that wasn’t some US plot. Perhaps The ‘79 short term take over of the Kaaba, and coming to power of the Ayatollahs in Iran were unintentional blow back results of US policies, but certainly wasn’t the intent. Consequences of adventurism and inflated self-importance and self-righteousness can, and usually does, take a while to play out.
 

IMHO oil will always be available, but over time other things will be cheaper, turning it into a niche energy source. Nazis and Germans gasified coal, and mu is there a lot of that in the ground. That time where oil is a nice energy is still far away. Remember the original oil shortage was from killing whales. 

[kshithij Sharma + 78]

3 hours ago, John Foote said:

Don’t fool yourself about a grand USA master plan. It was cheaper, and more profitable, to buy Middle East oil. Even after ‘73 when the Saudis learned they had been getting shorted on what they got. Aramco then was American. 
 

Clearly KSA and to a lessor but significant extent Iran, used the oil money for Islamic fundamentalism, but that wasn’t some US plot. Perhaps The ‘79 short term take over of the Kaaba, and coming to power of the Ayatollahs in Iran were unintentional blow back results of US policies, but certainly wasn’t the intent. Consequences of adventurism and inflated self-importance and self-righteousness can, and usually does, take a while to play out.
 

IMHO oil will always be available, but over time other things will be cheaper, turning it into a niche energy source. Nazis and Germans gasified coal, and mu is there a lot of that in the ground. That time where oil is a nice energy is still far away. Remember the original oil shortage was from killing whales. 

It was a USA grand plan. KSA hated USSR due to anti-Islamic policy of USSR. USSR had even killed its muslim ambassador to KSA in 1938 who was close to KSA king which broke down all diplomatic relations with USSR. USA promised KSA to arm islam and help KSA become the caliphs and also jointly take down USSR by cutting down USSR oil export money and causing ethnic rebellion.

Iran, however, was under Shah who was a USA puppet. KSA ruler was independent and hence USA had to offer terms to KSA whereas for Iran, USA could simply dictate terms as Shah was USA agent and was a westernised person himself. The revolution in Iran was mainly because of Shah's pro-USA and pro-western policy which made iranians angry. So, the petrodollar of Iran had nothing to do with Islamic fundamentalism but simply USA puppetry. Iranian revolution was against USA and would have overturned petrodollar. But Iran eventually ended up fighting iraq due to its overzealous revolutionary attitude and ended up getting weak and hence losing its strength to bring down petrodollar.

Nevertheless, USA involvement in Afghan war, direct military intervention in Albania formation, proxy assistance in Kashmir insurgency, chechnya insurgency etc shows that USA did intend to arm Islam as a return favour for petrodollar. Aramco was American but with 1973 Israeli war, we saw that the control was still with KSA when they could embargo the oil to USA. So, that was simply formalised by transferring the control to KSA itself.

Coming to availability of oil, oil will always be available. But it will not be extractable with EROI >1. Even the big reserves like Ghawar can be extracted only till 60% which means there is still 40% left. But these remaining resources will require lot of energy and pressurising to extract which will make the EROI <1 and hence unsustainable. Coal liquefaction is a wartime option. The petrochemicals for paint, pesticides, plastics etc will not be feasible using coal liquefaction. Also, coal liquefaction is not as easy as oil refining due to the fact that coal has to be dug out layer by layer whereas oil can simply be drilled out in one go. This means that oil is easier for mass production than coal. Coal liquefaction will help in wartime energy needs and small scale petrochemicals for food and wartime plastics and medicine. But the civilian economy and industry can't sustain using coal liquefaction. This means oil running out is real and inevitable soon. The situation of using oil & wax from whales is different from using oil from natural reserves and today's world can't make do with whale oil again.

Edited December 14, 2019 by kshithij Sharma

[John Foote + 1,135]

20 hours ago, kshithij Sharma said:

The situation of using oil & wax from whales is different from using oil from natural reserves and today's world can't make do with whale oil again.

The point of whales was there is always an alternative. England's first great energy shortage was from chopping down trees, but then this coal stuff turned up. Gasification competes fine at $100 barrel, which the world has survived with. One of the South African Krugers actually had a gasification plant on one of the denominations. Oil will just be a niche' product one day, a day far removed.

I dare say USSR had an serious anti-religion fetish, not just a anti-Islam one, seeing as atheism was the recommended doctrine. But the with the various stans in the USSR, of course Islam would take the brunt of it. Back in the 30s almost nobody cared a fig about KSA. But Roosevelt actually met Abdullziz, and other powers would only send lower lackies. KSA was barely a country. There were extended periods the USA paid 50 cents a barrel to the KSA. That's why the alignment. The heck with anything else, it was great for the OICs that were in with Aramco. Except for a moral stand by King Faisal, who knows how long Americans could have governed the price. And perhaps the Nixon/Kissenger petrodollar deal was an offer they couldn't refuse, or a coup would have ended the House of Saud.

Prior to the Soviet collapse the western's economic system, and the Soviet one, barely mingled. The binary approach to anyone against the Soviets was someone to go against was in play history has pretty much proven it was wrong and counterproductive. The Reagan/Bush arms to Iran and being in the illegal drug trade to fund the war on the contras in El Salvador shows how twisted it got. 

I do find MBS's dalliance with Putin dumbfounding, hard to see MBS winning that game of chess. And KSA's blind eye to the Ugers, and semi-cozy to Israel turns I did not anticipate. Had oil not had it's surge, I doubt Putin would have managed his success.

I don't think it was the pro-west stand the Shah created so many internal enemies, it was more the corruption and brutality. Oddly enough, Americans are typically quite welcome in Iran. And yes, the CIA shouldn't have put him into power. American adventurism, especially post WWII, is often an ugly tale. But having stable money, and money flow, has lifted the world to heights never known before. 

[kshithij Sharma + 78]

2 hours ago, John Foote said:

The point of whales was there is always an alternative. England's first great energy shortage was from chopping down trees, but then this coal stuff turned up. Gasification competes fine at $100 barrel, which the world has survived with. One of the South African Krugers actually had a gasification plant on one of the denominations. Oil will just be a niche' product one day, a day far removed.

The alternative is to live like 1900 era. The current level of infrastructure and production can't be maintained without oil.  am not saying that there is no alternative but that the alternatives are not up to the mark. South Africa used SASOL as oil supply source from coal liquefaction. But that was because South Africa was not a major industrial economy and relied on natural resource supply for its economy. South Africa sold gold, coal, diamonds etc to earn revenue and hence did not need more than coal liquefaction. If one wants to have industrial economy, oil is a must.

2 hours ago, John Foote said:

I dare say USSR had an serious anti-religion fetish, not just a anti-Islam one, seeing as atheism was the recommended doctrine. But the with the various stans in the USSR, of course Islam would take the brunt of it. Back in the 30s almost nobody cared a fig about KSA. But Roosevelt actually met Abdullziz, and other powers would only send lower lackies. KSA was barely a country. There were extended periods the USA paid 50 cents a barrel to the KSA. That's why the alignment. The heck with anything else, it was great for the OICs that were in with Aramco. Except for a moral stand by King Faisal, who knows how long Americans could have governed the price. And perhaps the Nixon/Kissenger petrodollar deal was an offer they couldn't refuse, or a coup would have ended the House of Saud.

Oil in KSA came into prominence only in 1960s. Till 1960, Kuwait & Iran produced more oil than KSA. In 1930s, oil in Arab region was not even discovered. If oil was discovered in Arab region, WW2 may have ended very differently. Germany's ally Italy had control of Libya and would have exploited the oil to make massive gains. Germany would not have to attack USSR for oil and hence the war would have been very different. So, obviously, none cared for the desert areas of Arab region when oil was not discovered. KSA did not know much about the use of its oil and it was only when its oil supply started becoming prominent that it started to understand its importance.

Petrodollar was not a deal KSA could not refuse. Doing a coup in Arabia, that too, allied with USA was very difficult. There was extreme anger against USA after 197 & 1973 war against Israel. We all saw what happened to Iranian Shah. In KSA, it was even more Islamic than Iran. Iran in the past had come under severe influence of Indian Sikhs, British & Russia due to which it was not as radicalised as Arabs. There would be no takers for a coup in favour of USA. King Faisal had simply stated that they don't care if USA bombs them but will not submit when threatened with military action. There was also USSR which would have supplied Arabs via Iraq if USA indeed try to invade. Arabs accepted petrodollar mainly due to USA helping them with Islamic causes like Afghanistan, supply of arms and making the Arabs the leader of Islamic world. Arabs were not educated, did not have any clout amongst Islamic world except for being guardians of the holy places, did not know any better use for their oil and chose to take the opportunity.

2 hours ago, John Foote said:

I do find MBS's dalliance with Putin dumbfounding, hard to see MBS winning that game of chess. And KSA's blind eye to the Ugers, and semi-cozy to Israel turns I did not anticipate. Had oil not had it's surge, I doubt Putin would have managed his success.

KSA is not cozy with Israel. KSA simply does not involve itself in Israeli issue as they don't find it meaningful to give too much attention to a tiny country. Israel imports 80% of its food, relies on USA weapons and military alliance to survive. Israel is just a USA outpost and not something MBS would give too much importance. MBS does ally with Russia to enhance the leverage on world economy by controlling oil supply. Russia produces & exports more oil than KSA. Naturally, Russia is a country KSA would like to align with. KSA was fanatical with the alliance of USA and in 2000s had even threatened Putin with terrorism in Chechnya. But with understanding that USA has lot of ulterior motives and its war against Iraq for oil, India's rise as a military power which can wipe out Arabs, KSA had little choice but to align with Russia to get maximum leverage on oil supply and strangle the west. What KSA did with USA in 1970s against Russia is being reversed.

It is not right to say that Russia would not have become prominent without surge in oil prices. Russia is prominent simply because it has world's largest oil reserves. Russia is also self sufficient and does not need much of imports from west in critical areas. Russia & USA both became superpowers due to vast oil reserves along with abundance of other natural resources like water, fertile land, minerals. Surge in price is not as important as having oil reserves. Russia was down in 1991-2000 because of disintegration of USSR whereby many industries and logistical supply chain was disrupted because they were present in countries which split apart, causing Russia to get deindustrialised to some extent. But Russia reindustrialised using the technology they already had and got back up. Russian success is because of its natural resources and technology base rather than international trade.

2 hours ago, John Foote said:

I don't think it was the pro-west stand the Shah created so many internal enemies, it was more the corruption and brutality. Oddly enough, Americans are typically quite welcome in Iran. And yes, the CIA shouldn't have put him into power. American adventurism, especially post WWII, is often an ugly tale. But having stable money, and money flow, has lifted the world to heights never known before.

Shah was brutal because he was against Islamic fundamentalism which was practiced throughout Iran. This turned people against him. The people did not fight Shah in 1953 as he had not made clear of his intentions. In Islamic world, the people tend to prefer dictatorship over democracy and hence Shah was welcomed. Moreover, Shah was already the legitimate king of Iran under constitutional monarchy. Moreover, his father was a strong leader who was deposed in WW2 giving the excuse that he was not allowing allies to protect Iranian oilfield from Nazi invasion. So, people did not really suspect him to be a CIA agent. But as time went by, he showed weakness and appeared like a puppet of Christians. This caused the revolution.