Interview on the IPO of Saudi Aramco: "The two-trillion valuation is exaggerated"



                        Interview on the Aramco IPO

                     "Two trillion rating is exaggerated"




Saudi Aramco is the giant among the oil companies and the treasure of the Saudi royal family. With several years of delay, the CO2 sling is now going public – but not at the major trading venues in New York, London or Hong Kong, but in Riyadh. In an interview with, capital market analyst Robert Halver of Baader Bank explains why Saudi Arabia is looking for the stability of domestic Tadawul, why he considers the corporate valuation of the Saudi crown prince unrealistic, but understandable, and why the IPO has dragged on for so long . The IPO of Saudi oil giant Saudi Aramco could become the biggest in history. The banks, which are supposed to determine the exact value of the company for investors, are having a hard time with it. For example, Bank of America has reported a spread of $ 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 business. Oil is used less and less, there is e-mobility, in the US fracking is getting stronger. In other words, the OPEC no longer has the power potential it once had. That's the one point. The other is the risks in the political sphere. It is safe to assume that Saudi Arabia desperately wants to go public because it is worried that oil revenues will not bubble in the next few years. At the same time, many large sovereign wealth funds such as the Norwegian are no longer allowed to buy oil stocks. There is this shift towards ESG shares, which must be absolutely clean at the ethical, social and governance levels. Of course, a CO2 slingshot like Aramco is not what you want. You are still doing good business with oil, but oil is losing importance. This explains these dramatic valuation differences.

Lucrative IPO

How much money Aramco makes 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 and sells shares of 2 percent in the IPO, the oil giant takes about $ 30 billion. If Aramco sells 3 percent of its shares at the same valuation, the Saudi royal family would earn $ 51 billion. The money wants to put Saudi Arabia in the "Vision 2030". This should help to reduce the dependency of the kingdom of oil. Instead, for example, the high-tech sector and tourism should be expanded and promoted.

The Saudi crown prince Mohammed bin Salman is aiming for a valuation of two trillion dollars. Do you think that's realistic?

Two trillion dollars are exaggerated and the price will be lower. That the crown prince wants to get the maximum out, is clear: Aramco is the Saudi treasury, there come 60 percent of the state revenue. That wants to sell as expensive as possible. Presumably, Saudi investors have been "guided" a bit, perhaps even forced to join Aramco. Transparency is not as high on the Saudi capital market as it is in Europe, the US or Asia. These are risks that need to be tapped. If you do that, you have to say that we're getting under $ 2 trillion in market value.

Still, Aramco is an insanely profitable company. Last year, net income was $ 111 billion. Apple has earned half as the most profitable company.

This is a very large corporation. 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 revenue comes from Aramco. Ten percent of the global oil supply comes from Aramco. These are huge sizes. So it's not surprising that you made $ 111 billion last year. This is a power house, in the oil business really the crown of creation. Of course, this also explains that you want to quickly go public to earn money and move Saudi Arabia in the high-tech direction.

But again, the price of oil fluctuates tremendously. We see this in OPEC production cuts in order to stabilize the price of oil or to counter the fracking boom: Aramco is the main contributing factor. Then, the $ 100 billion profit drops to $ 60 billion.

Surprisingly, Aramco is not to be listed on the major 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 that happen? The worry of the Saudis is also that they bring their pearl too cheap on the stock market. Suppose the New York IPO was imminent, but a day before, US President Donald Trump tweeted the trade war again: Markets would give in dramatically, the Saudis would have to float their treasury at a very low price. That's why they start the Saudi stock market. There, the friends of the royal family can better "guide" to invest and maintain the stock market price, so he does not give. If that has been established and is going well, then you will certainly try to put Aramco on the market in New York or in Europe.

Do legal concerns matter? Investors and investors have much more rights on the New York Stock Exchange and could file suit before a US court in case of financial inconsistencies. That would be more difficult in Saudi Arabia. There

The transparency on the Saudi capital market is certainly not as great as in New York. There you are after various accounting scandals, the financial crisis, many other problems very accurate and very picky and would like to create any new problems. Therefore, I can well imagine that in New York it has been said: Make it at home first. See that it works reasonably well and then we continue talking.

But Saudi Arabia is also very interested in not delaying this IPO. Oil is losing importance, so you have to get into the pots. If the stock market value is reasonably fair and the transparency is in line with American tastes, then you can venture onto Wall Street.

You mentioned the delays. If the IPO succeeds in December, he will be four years late. What was the reason for this?

We have had many fluctuations in the stock market in recent years. We had the trade war, and oil demand collapsed. We had the drone attack on Saudi Arabian oil facilities. It is in the Aramco to the Saudi treasury, which must be emphasized again and again. You do not want to put it on the stock market too cheaply. Saudi Arabia wants to change from an oil nation to a high-tech nation but it wants to achieve the highest possible price. Now that the stock markets have stabilized and where the trade war is a bit pacified one can dare.

Officially, Amin H. Nasser is the chief executive officer of Aramco. The 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 definitely say so.

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 earn a lot of money with oil. Aramco will pay high dividends and buy back many shares to stabilize the stock market price. However, one must also see the problems: Large investment funds invest less and less in CO2 slings. In terms of transparency, there are no ideal conditions in Saudi Arabia like in the USA. We have political problems. All these are great risks.

Christian Herrmann spoke with Robert Halver

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