7 ms·
Saudi Aramco: The message from the world’s biggest and wildest IPO
- neonate 7y agohttp://archive.is/DQUEd http://archive.is/DQUEd
- tracer4201 7y agoPaywall so couldn’t read full article. If someone buys during IPO, what prevents Saudi government from just running away with investors money?
- steve19 7y agoLike with sovereign bond defaulters or countries who have nationalised US owned assets: they would get sued in US courts. US courts would freeze and/or confiscate Saudi assets. Saudi Princes might find yatchs, private planes and super cars start getting impounded wherever lawsuits can be filed.
- rolltiide 7y agoThis is only listing on Riyadh’s stock exchange Good luck with jumping through all those hoops to invest and expecting recourse
- ChainOfFools 7y agowhat would prevent it from getting rolled up in an ETF and listed on, say, Nasdaq?
- throwaway2048 7y agothat does nothing to protect the underlying asset.
- darkteflon 7y agoThe Saudis engaged in a widely-publicised example of state-sanctioned murder of a US journalist last year with limited repercussions. I’d think twice before trusting in the rule of law where our politically expedient friends are concerned.
- twic 7y agoRight, but in the US, there's a big difference between murdering someone and taking investors' money.
- m0zg 7y agoKhashoggi wasn't a "US journalist" or a US citizen. He was a Saudi citizen, and he was killed on foreign soil. As despicable as the events were, let's not lose track of the facts here. WaPo calls him a "Saudi journalist and author": https://www.washingtonpost.com/people/jamal-khashoggi/ https://www.washingtonpost.com/people/jamal-khashoggi/ If you're appalled by this murder, do recall that our lord and savior Barack Obama droned US citizens he didn't like without trial in Yemen: https://en.wikipedia.org/wiki/Anwar_al-Awlaki https://en.wikipedia.org/wiki/Anwar_al-Awlaki So I'd say such extrajudicial executions are about par for the course for nation states.
- simonh 7y agoIt looks like the actual target of the drone was the Egyptian al-Banna. In any case, IMHO either you are able to target active terrorists without judicial overview or you're not, whatever their citizenship. I'm a Brit, so no skin in that particular issue, but for the record I have no problem with British jihadists that joined ISIS getting bombed. They made their choice.
- m0zg 7y agoI'm sure most Saudis don't have any problem with Khashoggi's killing either, for reasons that aren't too dissimilar to yours.
- 7y ago
- throwaway2048 7y agoThey might find that a completely acceptable tradeoff for hundreds of billions of dollars. Believing the Saudi government cares about the rule of law is a questionable proposition at best.
- achow 7y ago"Intention to float IPO" (official document): https://www.saudiaramco.com/-/media/images/investors/aramco---intention-to-float.pdf https://www.saudiaramco.com/-/media/images/investors/aramco-... If you are wondering about investing.. Offer Highlights: Listing of the Shares will be on the Main Market of Tadawul The Offering is being made available to qualifying Individual Investors and Institutional Investors. The Offering shall be restricted to the following two groups of investors: Tranche (A) (Institutional Subscribers): Institutional subscribers comprise the institutional investors eligible to participate in the book-building process as specified in Annex I Tranche (B) (Individual Investors): Individual investors comprise Saudi Arabian nationals, including any Saudi female divorcee or widow with minor children from a marriage to a non-Saudi person who can subscribe for her own benefit or in the names of her minor children, on the condition that she proves that she is a divorcee or widow and the mother of her minor children, any non-Saudi natural person who is resident in the Kingdom and any GCC national, in each case who has a bank account with one of the Receiving Entities
- Pyxl101 7y agoWhy does Tranche B specifically mention Saudi female divorcees? Is the implication that married and single women aren't allowed to purchase shares, or am I misunderstanding?
- simonh 7y agoIt also looks like thy couldn't subscribe if they don't have children, while presumably Saudi men can subscribe if married to a foreigner, if they have children or not. It's fascinating what goes through the heads (or doesn't) of people writing rules like this.
- x220 7y agoYes, that is the implication. Saudi Arabia oppresses women.
- toxik 7y agoWho knew feminism and climate awareness would tie up so nicely in the end? More renewables -> less oil -> less money for Saudi arabia
- kqr2 7y agoThe IPO price may be artificially inflated due to pressure on Saudi families to purchase shares: https://www.ft.com/content/19363bfc-dbc0-11e9-8f9b-77216ebe1f17 https://www.ft.com/content/19363bfc-dbc0-11e9-8f9b-77216ebe1...
- aembleton 7y agoNon-paywalled https://www.irishtimes.com/business/ey-entrepreneur-of-the-year/saudi-aramco-kick-starts-what-could-be-world-s-biggest-ipo-1.4070908 https://www.irishtimes.com/business/ey-entrepreneur-of-the-y... "Bankers say there is enthusiasm among Saudis for the listing, with domestic investors expected to comprise the bulk of the offering. Local banks are expected to lend heavily to Saudis to enable them to buy shares. Wealthy merchant families, many of whom were ensnared in Prince Mohammed’s corruption crackdown in 2017, have been pressed to invest."
- Alex3917 7y agoThe original oil well is probably the ultimate example of how the best ideas often sound completely insane. The basic story is that the guy pitched a bunch of VCs in New Haven in the 1850s and got laughed out of the room for saying that he thought the stuff inside whales was buried under a mountain in Pennsylvania.
- thombat 7y agoMaybe they were (bio)chemists at heart? That stuff under a mountain is mineral oil: more useful than edible oils in many ways but it has to go under the frying pan, not in it.
- tempguy9999 7y agoIt was not used much as food. https://en.wikipedia.org/wiki/Whale_oil https://en.wikipedia.org/wiki/Whale_oil only mentions margarine as an edible product. The rest are lubricants, lighting and soap. From reading the article, it seems some of the whale products were waxy esters which I guess weren't digestible anyway.
- sacrificedcapon 7y agoLike most of those stories, it's likely exaggerated nonsense. Everyone knew there was tons of oil in Pennsylvannia. Europeans knew of the oil-mineral since the 1600s. https://en.wikipedia.org/wiki/Drake_Well#History https://en.wikipedia.org/wiki/Drake_Well#History There were rivers of oil seeping out of the ground in pennsylvannia, ohio, etc. It was viewed mostly as a nuisance more than anything. What the "VCs" laughed at was the idea of oil replacing whale blubber as a light source.
- tempguy9999 7y agoCombustible oil from the ground has been known about since antiquity.
- roenxi 7y agoOne to sit back and watch with interest. The question should be "why now?". The Saudis don't have an industry more strategically important than oil.
- celticninja 7y agoSame as WeWork, offload the risk to the public now that the major profits have been taken.
- nickserv 7y agoProbably because in 10-15 years time an oil company won't be able raise any significant amount of money. Major investors have already started divesting from fossil fuels. If they're smart, the money will be invested in creating the post-oil economy SA will need. They could keep on being an important energy exporter, sunlight is very abundant there after all.
- nabla9 7y agoSaudi Arabia is economic time bomb. They want to sell because they need the money. Saudis have been running budget deficits 4 - 5 percent of the GDP year after year. Deficit might hit 7 percent this year. Saudi Aramco is a profit machine but the population is now over 30 million and the country if full of unemployment and bullshit jobs. Cutting spending may not be politically possible because it's buying peace. Official unemployment rate is less than 15% but it's estimated that only less than half of working-age Saudis hold jobs or actively seek work. Foreign exchange funds provide buffers but their net foreign assets are gradually eaten away if oil price don't recover.
- alex_duf 7y agoCash in now so that it doesn't become a stranded asset in the future.
- tuberelay 7y ago2 trillion market cap? Corrupt russian oil and gas companies trade at 4x earnings. At that valuation with annual earnings of $90 billion aramco should be valued at more like $360 billion. Sorry, but that's the penalty you pay for being a corrupt journalist murdering autocrat.
- dcolkitt 7y agoThe difference is that Saudi oil reserves basically cost nothing to extract. Maybe $5 a barrel. You literally poke a hole in the ground and oil bubbles out. That makes Aramco significantly less risky than your typical oil company. Even if oil goes to $25 a barrel, the company will still be solvent, and even profitable. Mismanagement (like Pemex) is basically impossible under these conditions. It also means less capital reinvestment is necessary, so more dividends for the shareholders. Less market risk, less operational risk, higher cash yield. All those things drive up the valuation multiple.
- bloak 7y agoPersonally I'd be worried that the easy-to-extract Saudi oil is about to run out and the Saudis know that and that's why they're selling. They run a fairly tight ship and might be capable of suppressing the truth about their oil reserves.
- lordgrenville 7y agoAs usual Matt Levine has a helpful take on this: 'Saudi “domestic investors could probably provide enough support to achieve that $2tn valuation.” Those domestic investors will probably pay the $2 trillion out of some combination of enthusiasm and, uh, “enthusiasm”... 'Look if WeWork could have ordered banks to lend money to investors to fund share purchases, and if it could have threatened people with arrest and torture if they didn’t buy shares, then I am pretty sure its IPO would have gone well. Aramco more or less can, which means that (1) there is a chunk of pretty inelastic demand at $2 trillion and (2) even if you are a foreign investor who thinks that the $2 trillion number is laughably high, you will be very diplomatic about expressing that in meetings with Aramco officials.' https://www.bloomberg.com/opinion/articles/2019-10-28/efficiency-is-ruining-hedge-funds https://www.bloomberg.com/opinion/articles/2019-10-28/effici...
- pimmen 7y agoIf you want to read a more thorough and vivid version of all the history mentioned, and so much more, I recommend The Prize: The Epic Quest for Oil, Money, and Power by Daniel Yergin. One of the most enjoyable non-fiction books I’ve ever read.
- publicrootkey 7y agoFrom my understanding, the high valuation of Saudi Aramco does not seem to stem from them being the best in to industry for processing oil, but rather, from their access to the richest and cheapest source of oil. This license is their source of making huge profits - i.e. the difference between the cost price versus the market price. To the best of my understanding, Saudi Aramco has no ownership of the oil fields but merely manages them on behalf of KSA. So is there anything impeding KSA from simply selling oil field access to someone else than Saudi Aramco after the IPO, and in effect, eliminating Saudi Aramco's source of profits?
- reallymental 7y agoWhy would you sell your goose that lays golden eggs? Even if you think that the goose might be getting older and less fertile, it doesn't make sense. It only makes sense if you know when the goose is gonna run out of eggs. And in this case I'm not sure anyone knows.
- awakeasleep 7y agoYou missed the point. The goose is the land. The eggs are the oil. The eggs roll into a basket where people can buy them. The basket is saudi aramco. Now that the basket has been sold, why not make a new basket and send over some eggies?
- aembleton 7y agoBecause only 1-2% of it is being sold. The Saudi state will still own 98% of the shares.
- tuberelay 7y agoWith a small float and Saudi state owning the other 98% it means that high price can be maintained with little inflow, but global passive equity investors are mandated (I think?) to hold a big chunk of this overpriced equity due to the huge market cap. Anyone know if that is correct?
- deleted 7y ago[deleted]
- droidno9 7y agoI wonder if the decision to float SA now is due to risk from alternative energy sources and, more recently, security risk. Trade the cow in for cash while you still can.
- hjek 7y ago> And then there is Saudi Arabia itself. Aramco’s pitch to investors will boast of its abundant, cheap and relatively clean oil. That much is true. Beautiful clean oil.