
How much is 5% of Saudi Aramco based on DCF Model? - finanancebuff
https://www.perchingtree.com/saudi-aramco-pre-ipo-valuation-discounted-cashflow-model/2/
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youeeeeeediot
Just what the world needs right now, an IPO that will generate a lot of funds
back to SA to cover their deficits/debts - some of which inevitably goes to
financing terrorism.

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ryanx435
Their vision 2030 plan is actually an attempt to strike at the root cause of
terrorism and religious extremism: economic disparity.

But you've probably never heard of their 2030 vision plan because it is never
really reported on, and it looks like you're just repeating talking points, so
good luck.

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GreaterFool
I haven't heard about vision 2030 but the quote as posted makes it sound like
the root of the problem was that SA is poor and the people suffer "economic
disparity". If only they were't so cash strapped all this time...

So, whose economic disparity are we talking about and why couldn't the
trillions generated from sale of oil do anything about it?

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ryanx435
How bout you go read about their vision 2030 plan before judging the whole
thing on my poorly worded anonymous internet comment? It's a pretty big change
to the structure of their entire society.

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zdkl
How about you link what you're referring to, from an official or reputable
source? I'll believe the Sauds aren't trying to further their continued power
when I see it.

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justinterested
Here is the link to Vision 2030, but no mention of anything

[http://vision2030.gov.sa/en](http://vision2030.gov.sa/en)

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yakult
This is purely speculation, but judging by how gun-ho they were about OPEC
production cuts, they may have much less oil than widely believed. It could be
they would have needed to cut production anyway since the wells are aging, and
they're just making the best of it.

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bousaid
They have plenty of oil. And more is found every day.

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justinterested
Undoubtedly, they do have plenty of oil and may find more. The political risks
and uncertainty around that region is the big problem really. Middle East has
so far been stable (atleast the GCC). With Qatar problem, it makes the
investors nervous.

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justinterested
I think a fair point to add is the fact that Saudi's probably misspoke before
the IPO leading to this piercing analysis from various analysts. Perhaps they
know that the price is way less than 2 Trillion Dollars and will be happy with
it. As someone has already mentioned, there are other risks that need to be
considered (some of which the analysis covers)

\- Dividend, Taxes and Royalty Whack a Mole - Reduce Dividends, it increases
the valuation but, pay back more dividends in the 2nd year back to the
majority shareholders. It throws the yearly cash flows into a spin. Investors
may start offloading the stock.

\- Political Risks i.e a major coup where the royal family is deposed and
another government installed.

\- Governance Risks - What if Minority Shareholders have no say and no power.
What if Assets cannot be seized ?

Add these risks and discount factor should be way higher like 30-40%.

What say ?

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codecamper
Why an IPO now?

Saudi Arabia sees a future, not too far off, where there is a sudden drop in
demand for oil. Caused by electric cars.

In the US, 51% of oil becomes gasoline. [https://www.quora.com/How-much-of-
the-oil-production-is-cons...](https://www.quora.com/How-much-of-the-oil-
production-is-consumed-by-cars)

A DCF model that does not take into account the rise of electric vehicles
misses a very important point.

The IPO puts money in their pockets NOW based on future predicted profits.
That money can be invested into true future technologies: EVs, clean energy,
etc.

Why the IPO now? The rise of Tesla and BYD maybe? It's still a time when those
are mostly unproven and so there are still plenty of skeptics and climate
denialists who will buy up Aramco shares.

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kobeya
Cars are only a small portion of oil use...

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pjc50
"Transport" is most of oil use. Admittedly that includes trucks, ships and
planes.

[http://www.globalpetrolprices.com/articles/39/](http://www.globalpetrolprices.com/articles/39/)

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kobeya
The vast majority of which is trucks, ships and planes.

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aianus
They already nationalized it once... They'll surely nationalize it again when
they go broke.

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Lanthanide
Doesn't work that way. The 5% sale is used to finance an overseas sovereign
wealth fund. If the shares were made void the overseas assets would be seized
by creditors and then the credit rating of the entire country would crash.
It's not the 1940s anymore.

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rsj_hn
I think this is a nice piece, but would like to see some discounting for
political risks. Saudi Arabia will retain a controlling interest in a firm
that is strategically important for many reasons other than turning a profit:

* to provide tax revenues to the Saudi Government

* to provide cheap oil to the Saudi public

* to control the price of oil for political reasons -- e.g. if it wants to reward/punish other nations

* as a symbol of national sovereignty

Moreover, the Saudi Government is in a difficult position needing to placate
some extreme forces and competing claims in their nation. It seems difficult
to believe that this 5% share is going to prioritized when tough choices need
to be made in the future.

That alone would, to me at least, call for a heavy discounting of future cash-
flows.

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justinterested
Good point. What would you consider an appropriate Discount Rate in this case
?

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rsj_hn
For me, personally it would be in the ballpark of 50%. I just don't see this
regime as being very trustworthy or serious about rolling back the trend of
nationalization in the oil sector that has been the dominant feature of this
ruling family.

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justinterested
I tend to kind of agree that a very high discount rate is appropriate, but, I
do not see how Saudis will agree to even discussing 30% let alone 50% discount
rate. They will rather quietly go to Institutional Investors Pre-IPO and allow
them a major buy in share. There is no doubt that Saudis are unreliable and
too many risks at play.

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adamnemecek
Haha so much for 3T. But I realize that it's not like this is anything but
analysis.

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jjeaff
Analysis is all that matters when it comes to the ipo. I'm sure there will be
other analysis, but if no one believes it's as big as 3T, then the ipo is not
going to raise what they want it to raise.

