Saudi Arabia $2 Trillion Aramco Vision Runs Into Market Reality
This article by Javier Blas and Wael Mahdi for Bloomberg may be of interest to subscribers. Here is a section:
Read entire articleEven within the Saudi government, doubts are emerging. A person familiar with the flotation, who asked not to be named, said last week Aramco in its current form would probably be worth about $500 billion because a lot of its cash goes toward taxes and future investors won’t have a say on investments in non-core areas. Another person familiar with IPO talks put the figure at a little less than $1 trillion if investors base the valuation on Aramco’s ability to generate cash.
Selling a 5 percent stake would therefore raise at least $25 billion, still enough to match Alibaba Group Holding Ltd.’s unparalleled 2014 offering and dole out millions of dollars of fees to the advisers hired to manage the sale, namely JPMorgan Chase & Co., Moelis & Co. and independent consultant Michael Klein.
The $2 trillion estimate was initially put forward by Deputy Crown Prince Mohammed bin Salman last March. There are two key issues, according to interviews with a dozen industry analysts, investors and executives, who asked not to be named because of the sensitivity of the matter.The first is that it’s premised on a simple calculation: Take the 261 billion barrels of reserves Saudi Arabia says lie under oil fields like the onshore Ghawar and offshore Safaniya, and multiply by $8 (a benchmark used to value reserves). An independent auditor is assessing Saudi reserves, the second- biggest worldwide, before the IPO.