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Saudi Aramco IPO: ‘Fool Me Once, Shame On You, Fool Me Twice.’

Business
Summary

Aramco to be “IPO-ed in 2018.”

We were “clear all along the timeframe would be 2020 or 2021.”

IPO shelved due to a host of problems.

KSA has to reform before an IPO.

Perhaps Aramco will sell reserves to China to diversify risk.

This idea was discussed in more depth with members of my private investing community, Boslego Risk Services. Start your free trial today »

Back in 2017, Saudi Arabian Crown Prince Mohammad bin Salman Bin Abdul aziz Al-Saud (MbS) told Reuters in an interview on Saudi Aramco (ARMCO) in Riyadh, “We are on track in 2018… but the listing (details) are still under discussion. It will be IPO-ed in 2018.”

In a bid to re-write history, Saudi Energy Minister Khalid al-Falih said in July 2019, “We have always been clear that the IPO will happen in the 2020-2021 timeframe. We have never stopped talking about the IPO.”

James Dorsey, a senior fellow at Singapore’s S. Rajaratnam School of International Studies, had said about MbS, “He’s been very good at creating expectations but not as good at managing expectations.”

Now that it’s clear that Saudi Arabia has mismanaged expectations about the timing of the IPO, it’s also appropriate to review why it was not “IPO-ed in 2018.”

Christopher Helman of Forbes wrote:

As thrilling as it would be for Trump and MbS to announce at a joint press conference that Aramco will be listed on the NYSE, it’s not going to happen. The grief of satisfying the requirements of a U.S. or U.K. listing are simply too stringent. Aramco would be wading into a minefield on the issues of corporate governance, transparency, gender equity, pay equity, sustainability, and carbon emissions. The company would also risk opening itself up further to lawsuits brought by the families of 9/11 victims. Investors are already unimpressed with the returns from publicly listed state-controlled oil companies like Petrobras, Rosneft and Petrochina. Do they need another?”

In fact, Mr. Al Falih had said back in 2018:

I would say litigation and liability are a big concern in the US. Quite frankly, Saudi Aramco is too big and too important for the kingdom to be subjected to that kind of risk.”

My own conclusion was:

Below I explain how Crown Prince Muhammad Bin Salman Bin Abdul aziz Al-Saud (MbS) put the cart before the horse in making the IPO the centerpiece of the Vision 2030 plan…. A reform of KSA’s institutions, perhaps by transitioning from a monarchy to a democratic society, could provide the legal, financial and economic climate for foreign investment and the transition MbS seeks from dependence on oil revenues, when he becomes king.”

Finally, Reuters reported that:

The king’s interlocutors told him that the IPO, far from helping the kingdom, would undermine it. Their main concern was that an IPO would bring full public disclosure of Aramco’s financial details, the sources said.”

In late June, the king sent a message to his diwan, or administrative office, demanding that the IPO be called off, the three sources said. The king’s decision is final, a second source said.

Whenever he says ‘no’, there is no budging,” the source said.

Conclusions

Bankers are questioning whether it is worth their effort to re-pitch Aramco. They worked for three years on the deal with nothing to show for it.

KSA would like the oil market to think it will finally list the IPO. The undercurrent the first time around was that KSA would be sure to get oil prices firmer going into the listing in an attempt to alter price expectations. The desire for firmer oil prices is the real reason behind this PR stunt.

A more likely outcome than a public listing would be a direct sale of Aramco reserves to China because it’s a lot less complicated than company shares. And China loves their hundred-year plans. And for Aramco, it locks in China as a customer for the next 70 years or so, during which world oil demand will peak, and prices could fall and stay down to reduce production accordingly.

At the right discount, there could be interest, and Aramco might even be able to achieve a higher price than in a public listing and with less risk. The present value of future revenues from reserves is very low, and the public would likely attach a higher political risk premium to it than China would, since China has enforcement power, unlike the public.

Seeking Alpha

 



19 Comments on "Saudi Aramco IPO: ‘Fool Me Once, Shame On You, Fool Me Twice.’"

  1. joe on Sun, 11th Aug 2019 10:06 am 

    Ireland recently issued a 100 years bond. Who the f–k knows the economics in 100 years to make it a worthwhile investment. 100 year econonic plans, 70 year oil contracts. This is all arrising because the global economy stopped growing after the collapse of the financial markets in 2008. We are on the slippery slope. Tight oil is drying up. Without an interest rates cut and a flood of new debt then investment banks wont fund exploration for a crappy 2% payoff.

  2. Famlin on Sun, 11th Aug 2019 10:27 am 

    Aramco is a woman with 3 husbands
    1. New York
    2. London
    3. Shanghai

    Where to list is the big question. On top of that, they have to provide full details like the quality of crude and how much quantity of each of them are produced.

    Of late the Aramco is producing only high sulfur heavy crude which fetches < price.

    On top of that the Chinese want to buy oil in Yuan which is a point of contention between USA and China.

    IPO will not be easy. On the other side, the electric vehicle sales are accelerating in China and they have plans to phase out oil consumption totally in next 15-20 years.

  3. makati1 on Sun, 11th Aug 2019 4:13 pm 

    KSA looking for suckers as the world economy contracts and oily profits are almost history.

  4. JuanP comment theft on Sun, 11th Aug 2019 5:25 pm 

    KSA looking for suckers as the world economy contracts and oily profits are almost history.

  5. JuanP on Sun, 11th Aug 2019 5:26 pm 

    I am spending less time on this lame unmoderated forum to concentrate on my own blog. I do want to thank all those who have attacked me with giving me material for growth. I have saved the best of my comments for my new blog. I have years worth of material. I have enjoyed moderating the worst of you and neutering your selfish useless agendas.

  6. More Davy ID Theft and Child Like Behavior on Sun, 11th Aug 2019 5:31 pm 

    JuanP comment theft on Sun, 11th Aug 2019 5:25 pm

    JuanP on Sun, 11th Aug 2019 5:26 pm

  7. makati1 on Sun, 11th Aug 2019 5:49 pm 

    Davy’s goat sex partner drowned and the weeds are shoulder high. All he has time to do is infest PO 24/7/365 with his delusional view of the world and his sock puppets.

    He is the typical arrogant, selfish, delusional, terrorist supporting, baby killing, brainwashed, greedy Amerikan. If he cannot control the site, he will try to destroy it, just like his dying country, the US is trying to destroy the world … and failing.

    I watch the slow collapse of the US from 8,000 miles away and am glad I no longer pay its taxes or live there. Life is simple here. All you have to do is watch for cobras if you venture into the jungle. At least they don’t carry AK-47s. LOL

  8. makati1 on Sun, 11th Aug 2019 6:01 pm 

    Notice how I made the point of talking up bestiality! I like sex with animals and always have this is why I use it on Davy all the time.

  9. Anonymouse on Sun, 11th Aug 2019 6:03 pm 

    mak, I sleep with a gerbil. In fact when I grin I look like a gerbil

  10. More Davy ID Theft on Sun, 11th Aug 2019 6:03 pm 

    makati1 on Sun, 11th Aug 2019 6:01 pm

  11. More Davy ID Theft and Child Like Behavior on Sun, 11th Aug 2019 6:04 pm 

    Anonymouse on Sun, 11th Aug 2019 6:03 pm

  12. JuanP on Sun, 11th Aug 2019 6:04 pm 

    I am spending more time on this lame unmoderated forum to concentrate less on my own pathetic life. I do want to thank all those who have attacked me with giving me material for growth. I have saved the best of my comments for my new blog. I have years worth of material. I have enjoyed moderating the worst of you and neutering your selfish useless agendas.

  13. JuanP identity fraud on Sun, 11th Aug 2019 6:05 pm 

    makati1 on Sun, 11th Aug 2019 6:01 pm
    Anonymouse on Sun, 11th Aug 2019 6:03 pm

  14. JuanP comment fraud on Sun, 11th Aug 2019 6:05 pm 

    Anonymouse on Sun, 11th Aug 2019 6:03 pm

  15. Sissyfuss on Sun, 11th Aug 2019 6:14 pm 

    Anonymouse, that sounds like a match made in gerbil heaven. You lucky dog,,,,,,, er,, gerbil.

  16. More Davy Child Like Behaviour on Sun, 11th Aug 2019 6:21 pm 

    JuanP on Sun, 11th Aug 2019 6:04 pm

    JuanP identity fraud on Sun, 11th Aug 2019 6:05 pm

    JuanP comment fraud on Sun, 11th Aug 2019 6:05 pm

    Sissyfuss on Sun, 11th Aug 2019 6:14 pm

  17. muhamadbinpedoalameriki-akafmr on Sun, 11th Aug 2019 6:24 pm 

    JuanP on Sun, 11th Aug 2019 6:04 pm

    JuanP identity fraud on Sun, 11th Aug 2019 6:05 pm

    JuanP comment fraud on Sun, 11th Aug 2019 6:05 pm

    Sissyfuss on Sun, 11th Aug 2019 6:14 pm

  18. Robert Inget on Mon, 12th Aug 2019 11:49 am 

    What was the question?
    Oh yes, ARAMCO IPO.
    Don’t touch it with a barge pole. (whatever that is)

  19. Robert Inget on Mon, 12th Aug 2019 3:00 pm 

    Ethan Kollie Return Body Armor to Amazon for Refund.

    NEWS:
    Ethan Kollie, friend of Dayton shooter, helped killer buy body armor, weapons parts: feds

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