Friday, November 08, 2019
Interview on Aramco IPO
"Two trillion valuations are exaggerated"
Saudi Arabia is the giant among the oil companies and the treasure of the Saudi royal family. With several years of delay, the CO2 harness is now public, but not in the main commercial offices of New York, London or Hong Kong, but in Riyadh. In an interview with Good king News, capital market analyst Robert Halver of Baader Bank explains why Saudi Arabia is looking for the stability of the domestic Tadawul, because it considers unrealistic, but understandable, the business valuation of the Saudi Crown Prince and why the IPO has dragged on for so long,
Good king News: The IPO of the Saudi giant Saudi Aramco could become the largest in history. Banks, which should determine the exact value of the company for investors, have difficulty doing so. For example, Bank of America reported a spread from $ 1.2 to $ 2.3 trillion. This is a gap in the size of Apple or Microsoft. Where does this discrepancy come from?
Robert Halver: there are many risks in the oil industry. Oil is being used less and less, there is electric mobility, in the United States fracking is becoming stronger. In other words, the OPEC no longer has the energy potential of the past. This is the only point. The other are the risks in the political sphere. It is safe to assume that Saudi Arabia desperately wants to become public because it is worried that oil revenues will not spread in the coming years. At the same time, many large sovereign funds such as the Norwegian are no longer allowed to buy oil stocks. C & # 39; is this shift towards ESG actions, which must be absolutely clean ethically, socially and in terms of governance. Of course, a sling of CO2 like Aramco is not what you want. You're still doing good business with oil, but oil is losing its importance. This explains these dramatic differences in assessment.
How much Aramco earns with its IPO depends on two questions: how much is the company worth? How many shares are sold at the IPO? Two examples: if Aramco is worth 1.7 trillion dollars and sells 2 percent shares in the IPO, the oil giant employs about 30 billion dollars. If Aramco sold 3 percent of its shares at the same valuation, the Saudi royal family would earn $ 51 billion. Money wants to put Saudi Arabia in "Vision 2030". This should help reduce the dependence of the oil kingdom. Instead, for example, the high-tech sector and tourism should be expanded and promoted.
The Saudi crown prince Mohammed bin Salman points to an assessment of two trillion dollars. Do you think it's realistic?
Two trillion dollars is exaggerated, the price will be lower. It is clear that the crown prince wants to get the most: Aramco is the Saudi treasure, 60 percent of state revenues come. Who wants to sell as expensive as possible. It is likely that Saudi investors have also been "driven" a little, maybe even forcedto join Aramco. Transparency is not high on the Saudi capital market like in Europe, the United States or Asia. These are risks that must be exploited. If you do, you have to say: we are getting less than $ 2 trillion of market value.
However, Aramco is a madly profitable company. The last year, the net profit was $ 111 billion. Apple earned the second most profitable company only half.
This is a very large group. It's bigger than BP, Chevron, Exxon Mobile, Royal Dutch Shell and Total – and these are the big, big, big oil companies. Sixty percent of government revenues come from Aramco. Ten percent of the world's oil supply comes from Aramco. These are huge dimensions. So it's not surprising that you earned $ 111 billion last year. This is a power plant, in the oil sector really the crown of creation. Obviously, this also explains that you want to be fast to become public to earn money and move Saudi Arabia in the direction of high technology.
But still: the price of oil oscillates tremendously. We see it in the OPEC production cuts to stabilize the oil price or to counter the fracking boom: Aramco is the main contributing factor. So the profit of $ 100 billion drops to $ 60 billion.
Surprisingly, Aramco should not be listed on major trading venues in New York, London or Hong Kong, but on the domestic side: the Saudi Tadawul. Why?
The IPO on Tadawul is a test balloon. The Saudi leadership wants to see: how does it happen? The concern of the Saudis is also that they bring their pearls too cheap to the stock market. Suppose the New York IPO was imminent, but a day earlier, US President Donald Trump tweeted trade war again: the markets gave up dramatically, the Saudis would have to float their treasure at a price very low. That's why the Saudi stock market starts. There, friends of the royal family can "guide" better to invest and maintain the price of the stock market, so do not give. If this has been established and is going well, you will certainly try to put Aramco in New York or Europe on the stock exchange.
Do legal matters also matter? Investors and investors have many more rights on the New York Stock Exchange and may file a case before an American court in the event of financial inconsistencies. It would be more difficult in Saudi Arabia.
Transparency in the Saudi capital market is certainly not as exceptional as in New York. Here you are after several accounting scandals, the financial crisis, many other very precise and very demanding problems and you would like to create new problems. Therefore, I can well imagine that in New York it has been said: do it first at home. See that it works quite well and then we keep talking.
But also Saudi Arabia has a great interest in not delaying this IPO. Oil is losing importance, so you have to get into the pots. If the value of the stock market is reasonably adequate and transparency is in line with American tastes, then you can venture into Wall Street.
You faced delays. If the IPO is successful in December, it will be four years overdue. What was the reason?
In recent years we have had many fluctuations in the stock market. We had a trade war and the demand for oil collapsed. We had the Drones attack on oil structures in Saudi Arabia, It is in the Aramco al Saudi treasury, which must be emphasized again and again. You don't want to put it in your bag too cheaply. Saudi Arabia wants from an oil nation to a high-tech nation, you want to get the highest possible price. Now that the stock markets have stabilized and where The trade war a little pacified is, you can dare.
Officially, Amin H. Nasser is CEO of Aramco. Decisions are made by the Saudi crown prince, right?
You can assume that. It is a state-owned oil company and the Saudi royal family is on the trigger. You can certainly tell.
As a capital market analyst, would you invest in Aramco under these conditions?
Let's start with the positive: we still know that you can make a lot of money with oil. Aramco will pay high dividends and will repurchase many shares to stabilize the stock market price. However, we also need to look at the problems: large investment funds are investing less and less in CO2 bands. In terms of transparency, there are no ideal conditions in Saudi Arabia as in the United States. We have political problems. All of these are big risks.
Christian Herrmann spoke with Robert Halver