It's been nice weekends and now its time for some investing opportunities from HNFC.
The biggest IPO of all time, great expected volatility, loads of money can be be made.
All of it is about "Saudi Aramco IPO" don't miss this truly rear opportunity.
All the markets are waiting for the biggest IPO ever. The Saudi Arabia’s Plan Vision 2030 includes offering 5% of the 100% state-owned company Saudi Aramco. Saudi Aramco is the kingdom’s petroleum and national gas company with a Saudi Arabia’s predicted value of $2 trillion which would mean a market valuation of $100 billion. The biggest IPO to date was the Chinese group Alibaba which has a market valuation of $25 billion and it represents only a fourth of the Saudi Aramco one.
1. The Saudi Arabian Situation: why have they decided to put 5% of Saudi Aramco on the private market?
The 25th of April 2016, the king Salman’s son Mohammed Bin Salman has laid out a plan called the Vision 2030 built around three themes: a thriving economy, a vibrant society and an ambitious nation. The main goal of this Plan is to reduce the economy’s dependence on oil and on the state by diversifying the revenues and boosting the private sector investment.
Diversifying its economy has been a goal for Saudi Arabia since the 1970s as the price of the oil is very unstable. After reaching a pick of $114 per barrel in 2014, oil prices have felt to under $30/barrel in early 2016 before stabilizing at $50/barrel. This instability has created a big deficit in the budget representing up to $79 billion. Indeed, Saudi Arabia has been forced to reduce: its foreign reserved, its government spending and to increase its taxes and its borrowing. Selling 5% of Saudi Aramco would help the country to have revenues to diversify its economy as it could inject $100 billion in the kingdom’s budget.
2. What about Saudi Aramco valuation?
Some economists are skeptical about the high valuation of the company thinking that the real valuation is near to $1 trillion than $2 trillion. Yet, the Saudi Arabia’s government has prepared this IPO by cutting the income tax paid by Aramco from 85% to 50% in order to attract private investors. Even if this cutting could affect the kingdom’s finances, this could be compensated by the increase of dividend payments if the IPO help the company to improve its business and form partnerships with private-sectors companies. This cut will therefore increase the valuation of the company without affecting the kingdom’s budget on the long term.
Initially, the IPO was expected in early 2018 but the expectations have been delayed to late 2018 and even 2019 as Saudi Arabia desires to do reforms, and others financial restructurings, in order to increase the value of Saudi Aramco and therefore attract the investors.
3. Where do the shares will be offered?
Saudi Aramco have first announced that the shares would be offered in the Saudi Arabia Stock Exchange: Tadawul but recent rumours about shares in others stock exchanges have been spread. Indeed, the company would be considering offering shares on one or more foreign stock exchanges such as London, New York or Hong-Kong. The company has not yet revealed in which main listings it will appear but some rumours about NYSE have been going around. Yet, the stricter regulations which could force the company to reveal its oil reserves (considered as national security secret because owned by the Crown) and the possible exposition to lawsuit for the Saudi government are not in favor of NYSE. Even if the President Trump has expressed that he wants to list the Saudi’s company in the USA (on Twitter as usual).
4. Why Saudi Aramco weighs between private share sales and IPO?
Aramco are also considering another option as the two biggest Chinese state-owned oil companies PetroChina and Synopec have offered to buy directly the 5%. Indeed, China wants to secure its oil supplies by buying shares from the biggest oil company in the world. It could also help China to convince Aramco to accept yuan payments for its oil instead of US dollars, as China is trying to make its currency a global one. If Saudi Arabia accepts this offer the IPO would be cancelled.
But why is Saudi Arabia considering this option? In fact, private share sales instead of IPO would allow Saudi Arabia to keep its privacy concerning the company’s revenues, valuation and oil reserves. Moreover, this would help them to relaunch their business by supplying the second largest oil consuming country which is China.
5. In case of IPO, should I invest?
There is no simple answer to this question as many things have to be taken into account. In addition to the instability of the oil prices, it is a fact that the oil economy is declining. Most of countries and companies are trying to reduce their oil consumption replacing oils by renewable energies. Indeed, the demand in renewable energy is growing which is far from being in favor of the oil demand. As Bernstein, an investment researcher, said: “Whether or not you believe in climate change, an unstoppable shift away from coal and oil towards lower-carbon fuels is under way, which will ultimately bring about an end to the oil age”. This is a reason why Saudi Arabia wants to reduce its dependence in oil.
The second problem is the lack of transparency of Saudi Arabia which owns 100% of this company. The real results, oil reserves and other crucial information about the company are not sure to be revealed or to be 100% accurate. Indeed, there are suspicions about the Aramco’s oil reserves which would be not as big as reported. As the oil remains the property of Saudi Arabia, the probability of a full audit of Saudi oil reserves is near to 0.
Investing in Saudi Aramco’s shares could therefore be risky unless you believe that the oil demand in long-term will still be as high as today and blindly believe in Saudi Arabia’s government.
To conclude, Saudi Aramco IPO is more about rumors and assumptions for the moment but the next few months will be crucial for the worlds as it would affect the markets, the Saudi Arabia’s future and the world’s economy.
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Written by Louiz Domoustchieva │Independent Stock Analyst
Edited and Corrected
by Vee Venski
This article is not a promotion of financial investment. Investing money in financial instruments is risk-reward process. Losses and gains are part of financial investment process. Only invest money you can afford to lose.