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Is Saudi Aramco just hype?

AvatarBen Sturgill ·

The world has been eagerly awaiting more news to come out on the Saudi Aramco IPO.

Investors are wondering if Aramco should go on their precious Christmas wish list…

If you don’t already know, Saudi Aramco is the largest oil company in the world.

Last year it netted $111 billion, which is scores way more than what our little Exxon Mobil and BP netted together during the same time.

And oh yeah…

It’s bigger than any tech giant too… sorry Amazon… sorry Apple… sorry Microsoft.

So you can imagine all the hype surrounding this IPO…

A build-up that’s taken over 3 years… with a plethora of delays along the way… but it’s finally coming to a head now.

This weekend Aramco upped the level of anticipation for investors with the release of a 600+ page prospectus about the IPO.

But don’t worry about the many hours and days you would spend reading it, I already took on the task.

So what’s going on with Saudi Aramco and what key details did I uncover in the massive prospectus?

 

 

Saudi Aramco Overvalued at more than $1T

 

Saudi Aramco, as you know, will be the biggest IPO to date, completely eclipsing its predecessor holiday-capitalizing Alibaba (or you may know it as the people that brought us Singles Day).

While the Prince of Saudi Arabia totes that the company is worth $2 trillion, it is now valued more around $1.2 to $1.5 trillion by Wall Street.

Aramco also planned to trade on a more elite exchange like NYSE, but the listing has since been postponed. Worrying some investors that it could potentially never happen.

But what we do know it will be hot n’ ready and available on the very young Saudi Stock Exchange Tadawul coming sometime this December.

The Tadawul is only 12-years-old and only 4 years ago begun allowing foreign investors to trade. It has never listed an IPO of this magnitude or with this degree of interest.

With Aramco, they will potentially be batting with the big leagues.

Preemptively it has begun making preparations to handle the kind of high trading volume that goes hand and hand with a listing this large. Due to Aramco being listed here it will require the use of Saudi riyal to make a purchase. This can cause bucket of issues for foreign investors.

 

Aramco has a funky share structure

 

When Aramco goes public, the initial amount shares listed will be the only shares listed for six months. But how much of Aramco will be floated is still a mystery.

However, what was disclosed was that a 0.5% of the company will be set aside for institutional investors.

With everyone on the edge of their seats awaiting this IPO some concerning factors have arisen with the release of the novel length prospectus.

A large draw for investors is those delicious dividends that were laid temptingly before them, with the tantalizing promise of a base dividend payout of $75 billion in 2020.

But the prospectus states that Aramco has the right to do away with this policy at any time. Also, without any notice.

As easy *Poof* there goes your dividends as you unknowingly sip your morning cup of joe.

There are also apprehensions simply about the area Saudi Aramco calls home.

As we all know the Middle East in specific areas has been retaining a strong element of danger. Aramco is no stranger to this fact.

This past September there were not one but 2 attacks on Aramco production facilities. These attacks resulted in a temporary shutdown of output for the company. This shut down shut off around 5% of the world’s supply.

 

 

Risks involved with Aramco


The attacks raised questions on just how vulnerable Aramco’s is.

The prospectus addresses this fear factor stating, “terrorism and armed conflict may materially and adversely affect the company and the market price of the shares”.

Feeling a bit concerned now?

The Saudi government will also remain the largest shareholder of the company. This would leave the government and the Prince in charge of much of the ongoings within the company.

The government has reserved the right to decide the maximum amount of oil that can be produced. It also has the power to determine what projects the company will undertake.

To top off that level of power the government reigns over Aramco it also has veto power over any majority votes that shareholders have.

Next, the Prince ─ Who isn’t the most innocent of fellas.

Earlier this fall the Prince took full responsibility for the murder of a Saudi journalist all while still denying that he ordered the actual act. But he is still a man with a plan, with goals set to steer the economy away from being so heavily tied to oil.

Saudi Aramco produces 10% of the world’s oil. It goes beyond big oil with its sheer magnitude, monstrous in size.

And it has teased us long enough.

Saudi Aramco gave us a lot of information in its prospectus, but it also didn’t give us 2 key details.

Size and price.

Potentially very soon we will have all the mysteries unveiled.

If you want to stay one step ahead of the IPO, you’ll want to learn these three simple patterns… so you’ll be ready to attack if and when Saudi Aramco goes public.

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