
Saudi Aramco: The message from the world’s biggest and wildest IPO - prostoalex
https://www.economist.com/leaders/2019/10/31/the-message-from-the-worlds-biggest-and-wildest-ipo
======
achow
"Intention to float IPO" (official document):

[https://www.saudiaramco.com/-/media/images/investors/aramco-...](https://www.saudiaramco.com/-/media/images/investors/aramco
---intention-to-float.pdf)

If you are wondering about investing..

Offer Highlights:

Listing of the Shares will be on the Main Market of Tadawul

The Offering is being made available to qualifying Individual Investors and
Institutional Investors.

The Offering shall be restricted to the following two groups of investors:

Tranche (A) (Institutional Subscribers): Institutional subscribers comprise
the institutional investors eligible to participate in the book-building
process as specified in Annex I

Tranche (B) (Individual Investors): Individual investors comprise Saudi
Arabian nationals, including any Saudi female divorcee or widow with minor
children from a marriage to a non-Saudi person who can subscribe for her own
benefit or in the names of her minor children, on the condition that she
proves that she is a divorcee or widow and the mother of her minor children,
any non-Saudi natural person who is resident in the Kingdom and any GCC
national, in each case who has a bank account with one of the Receiving
Entities

~~~
Pyxl101
Why does Tranche B specifically mention Saudi female divorcees? Is the
implication that married and single women aren't allowed to purchase shares,
or am I misunderstanding?

~~~
celticninja
A married female is the property of her husband, therefore the investment is
being made by a non-saudi national if she is married to a foreign national.
Just your everyday Saudi sexism.

~~~
abdulhaq
A married woman is not the property of her husband. Stop spreading lies and
hate.

~~~
Pyxl101
I was curious about the issue and found this article which has some details:
[https://en.wikipedia.org/wiki/Women%27s_rights_in_Saudi_Arab...](https://en.wikipedia.org/wiki/Women%27s_rights_in_Saudi_Arabia)

In Saudi Arabia, women need permission from their male guardian to perform a
variety of activities:

> The anti male-guardianship campaign is an ongoing campaign by Saudi women
> against the requirement to obtain permission from their male guardian for
> activities such as getting a job, travelling internationally or getting
> married.

[https://en.m.wikipedia.org/wiki/Saudi_anti_male-
guardianship...](https://en.m.wikipedia.org/wiki/Saudi_anti_male-
guardianship_campaign)

While maybe not property (just like how children are not property of their
parents in the US), it does seem that women’s rights are limited in Saudi
Arabia compared to most other countries.

Can single or married Saudi women purchase Aramco stock in this sale or do
they need permission from their husband/guardian? That’s what I was trying to
understand originally. Reading between the lines, it seemed to be saying that
only divorced women who are responsible for kids can buy shares, and other
women cannot (maybe with permission of their guardian?)

~~~
GhettoMaestro
> [...] it does seem that women’s rights are limited in Saudi Arabia compared
> to most other countries.

I would like to nominate this for comment for 'Most Valuable Understatement'
of the day.

Trolling aside, yes, it is very restrictive for females living in Saudi Arabia
compared to pretty much any other country on Earth. I have hope that in my
lifetime this will change.

------
tuberelay
2 trillion market cap?

Corrupt russian oil and gas companies trade at 4x earnings. At that valuation
with annual earnings of $90 billion aramco should be valued at more like $360
billion.

Sorry, but that's the penalty you pay for being a corrupt journalist murdering
autocrat.

~~~
dcolkitt
The difference is that Saudi oil reserves basically cost nothing to extract.
Maybe $5 a barrel. You literally poke a hole in the ground and oil bubbles
out.

That makes Aramco significantly less risky than your typical oil company. Even
if oil goes to $25 a barrel, the company will still be solvent, and even
profitable. Mismanagement (like Pemex) is basically impossible under these
conditions. It also means less capital reinvestment is necessary, so more
dividends for the shareholders.

Less market risk, less operational risk, higher cash yield. All those things
drive up the valuation multiple.

~~~
bloak
Personally I'd be worried that the easy-to-extract Saudi oil is about to run
out and the Saudis know that and that's why they're selling. They run a fairly
tight ship and might be capable of suppressing the truth about their oil
reserves.

------
publicrootkey
From my understanding, the high valuation of Saudi Aramco does not seem to
stem from them being the best in to industry for processing oil, but rather,
from their access to the richest and cheapest source of oil. This license is
their source of making huge profits - i.e. the difference between the cost
price versus the market price.

To the best of my understanding, Saudi Aramco has no ownership of the oil
fields but merely manages them on behalf of KSA. So is there anything impeding
KSA from simply selling oil field access to someone else than Saudi Aramco
after the IPO, and in effect, eliminating Saudi Aramco's source of profits?

~~~
reallymental
Why would you sell your goose that lays golden eggs?

Even if you think that the goose might be getting older and less fertile, it
doesn't make sense.

It only makes sense if you know when the goose is gonna run out of eggs. And
in this case I'm not sure anyone knows.

~~~
awakeasleep
You missed the point.

The goose is the land. The eggs are the oil.

The eggs roll into a basket where people can buy them.

The basket is saudi aramco.

Now that the basket has been sold, why not make a new basket and send over
some eggies?

~~~
aembleton
Because only 1-2% of it is being sold. The Saudi state will still own 98% of
the shares.

~~~
tuberelay
With a small float and Saudi state owning the other 98% it means that high
price can be maintained with little inflow, but global passive equity
investors are mandated (I think?) to hold a big chunk of this overpriced
equity due to the huge market cap. Anyone know if that is correct?

~~~
currere
According to [1] you can have float-adjusted or market-cap weighted indices.

> An example of a company in which float-adjustment comes into play is Amazon
> (AMZN). The online retail giant's overall market cap is estimated at around
> $130 billion. However, only about two thirds of its shares are publicly
> traded. The non-publicly traded shares, controlled by insiders such as
> founder and CEO Jeff Bezos, would not be included when determining a
> company's weight in a float-adjusted index. Incidentally, a company's full
> market cap, including both its float and non-float shares, is used to
> determine whether it belongs in the index.

So it depends on the index.

[1]
[https://www.morningstar.co.uk/uk/news/124023/understanding-p...](https://www.morningstar.co.uk/uk/news/124023/understanding-
passive-funds.aspx)

------
Alex3917
The original oil well is probably the ultimate example of how the best ideas
often sound completely insane. The basic story is that the guy pitched a bunch
of VCs in New Haven in the 1850s and got laughed out of the room for saying
that he thought the stuff inside whales was buried under a mountain in
Pennsylvania.

~~~
thombat
Maybe they were (bio)chemists at heart? That stuff under a mountain is mineral
oil: more useful than edible oils in many ways but it has to go under the
frying pan, not in it.

~~~
tempguy9999
It was not used much as food.
[https://en.wikipedia.org/wiki/Whale_oil](https://en.wikipedia.org/wiki/Whale_oil)
only mentions margarine as an edible product. The rest are lubricants,
lighting and soap.

From reading the article, it seems some of the whale products were waxy esters
which _I guess_ weren't digestible anyway.

------
kqr2
The IPO price may be artificially inflated due to pressure on Saudi families
to purchase shares:

[https://www.ft.com/content/19363bfc-
dbc0-11e9-8f9b-77216ebe1...](https://www.ft.com/content/19363bfc-
dbc0-11e9-8f9b-77216ebe1f17)

~~~
aembleton
Non-paywalled [https://www.irishtimes.com/business/ey-entrepreneur-of-
the-y...](https://www.irishtimes.com/business/ey-entrepreneur-of-the-
year/saudi-aramco-kick-starts-what-could-be-world-s-biggest-ipo-1.4070908)

"Bankers say there is enthusiasm among Saudis for the listing, with domestic
investors expected to comprise the bulk of the offering. Local banks are
expected to lend heavily to Saudis to enable them to buy shares. Wealthy
merchant families, many of whom were ensnared in Prince Mohammed’s corruption
crackdown in 2017, have been pressed to invest."

------
neonate
[http://archive.is/DQUEd](http://archive.is/DQUEd)

------
droidno9
I wonder if the decision to float SA now is due to risk from alternative
energy sources and, more recently, security risk. Trade the cow in for cash
while you still can.

------
pimmen
If you want to read a more thorough and vivid version of all the history
mentioned, and so much more, I recommend _The Prize: The Epic Quest for Oil,
Money, and Power_ by Daniel Yergin. One of the most enjoyable non-fiction
books I’ve ever read.

------
roenxi
One to sit back and watch with interest. The question should be "why now?".

The Saudis don't have an industry more strategically important than oil.

~~~
nabla9
Saudi Arabia is economic time bomb. They want to sell because they need the
money.

Saudis have been running budget deficits 4 - 5 percent of the GDP year after
year. Deficit might hit 7 percent this year. Saudi Aramco is a profit machine
but the population is now over 30 million and the country if full of
unemployment and bullshit jobs.

Cutting spending may not be politically possible because it's buying peace.
Official unemployment rate is less than 15% but it's estimated that only less
than half of working-age Saudis hold jobs or actively seek work. Foreign
exchange funds provide buffers but their net foreign assets are gradually
eaten away if oil price don't recover.

------
hjek
> And then there is Saudi Arabia itself. Aramco’s pitch to investors will
> boast of its abundant, cheap and relatively clean oil. That much is true.

Beautiful clean oil.

------
tracer4201
Paywall so couldn’t read full article. If someone buys during IPO, what
prevents Saudi government from just running away with investors money?

~~~
steve19
Like with sovereign bond defaulters or countries who have nationalised US
owned assets: they would get sued in US courts. US courts would freeze and/or
confiscate Saudi assets. Saudi Princes might find yatchs, private planes and
super cars start getting impounded wherever lawsuits can be filed.

~~~
darkteflon
The Saudis engaged in a widely-publicised example of state-sanctioned murder
of a US journalist last year with limited repercussions. I’d think twice
before trusting in the rule of law where our politically expedient friends are
concerned.

~~~
m0zg
Khashoggi wasn't a "US journalist" or a US citizen. He was a Saudi citizen,
and he was killed on foreign soil. As despicable as the events were, let's not
lose track of the facts here.

WaPo calls him a "Saudi journalist and author":
[https://www.washingtonpost.com/people/jamal-
khashoggi/](https://www.washingtonpost.com/people/jamal-khashoggi/)

If you're appalled by this murder, do recall that our lord and savior Barack
Obama droned US citizens he didn't like without trial in Yemen:
[https://en.wikipedia.org/wiki/Anwar_al-
Awlaki](https://en.wikipedia.org/wiki/Anwar_al-Awlaki)

So I'd say such extrajudicial executions are about par for the course for
nation states.

~~~
lostlogin
Hit squads with bone saws sawing people up in their embassies are not par for
the course. This was an extreme event. Drone striking ones citizens is extreme
too.

~~~
m0zg
Sure (assuming "bone saws" aren't made up by the Turks - they've never
actually been demonstrated). But be that as it may, we're hardly fit to
lecture others from our high horse.

~~~
lostlogin
> But be that as it may, we're hardly fit to lecture others from our high
> horse.

Could you explain this? Why can’t a group claim moral superiority for not
butchering people? And what grouping of people does ‘we’ refer to?

~~~
m0zg
United States. It was suggested that the US should sever ties with SA to
protest the killing.

~~~
darkteflon
No one suggested that. Let’s not lose track of the facts here. The original
point was about whether Saudi Arabia is a rule of law jurisdiction; it is not
and potential investors might do well to keep that in mind.

