Tag: Saudi Aramco

  • The Dilemmas About Aramco Investing Are Showing Up

    The Dilemmas About Aramco Investing Are Showing Up

    The Dilemmas About Aramco Investing Are Showing UpInvestors’ demand drove Saudi Aramco market value to $2 trillion on the first 2 days of trade in Riyadh

    But the dilemmas about Aramco investing rose. Yes, Saudi Aramco (SE:2222) reached the $2 trillion target. Saudi leader Crown Prince Mohammed bin Salman had a wish, and it became a truth on Thursday, December 12. Aramco shares have been rising for the second day to make Saudi Prince happy. Finally, this guy has a chance to show how big visionary he is. 

    Aramco’s initial public offering (IPO) is the cornerstone of his vision to provide Saudi’s economy the independence from oil. The money ($25.6 billion) collected by selling the shares of Aramco will be used for developing some other fields of the national economy. That is how the plan was presented in public. So far, so good.
    This is a tremendous opportunity for the Kingdom. Oil has long been the main export product for Saudi Arabia and Aramco is the biggest oil company in the world.

    The end of the fairy tale?

    The bubble around Aramco shares grows. Even before its IPO. It was represented as a great investment, a great opportunity for investors all over the world. But just be careful. If some sharks are buying those shares it doesn’t mean that everyone should do the same. Maybe Saudis have to do that but you don’t. Saudi Aramco is a state-owned company and some Saudis, according to media reports, are taking loans to buy the shares.

    Saudi Aramco’s IPO gives opportunities for Saudi citizens. Now, they can have a part of this Kingdom’s crown jewel. And everyone is excited, full of optimism and enthusiasm. But, where is the limit of it?

    Must be somewhere. 

    The share price is high in December, as we can see and it seems it will rise more. But what if the stock is overvalued? What if it is a bubble? It will explode and the prices will eventually fall.

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    Why the dilemmas about Aramco investing arise?

    For several reasons.

    Saudi Aramco has become the most valuable listed company in history. This oil producer gained a market value of $1.9tn on its first day of trade.
    Shares were climbing almost $200bn above the $1.7tn valuation established before its market appearance on Riyadh’s stock exchange.
    This the biggest “provider” of the climate crisis had been valued at more than Apple and Facebook together. Also, double more than Amazon and Alphabet. 

    On the second trading day, it hit the $2 trillion target.

    But investors should be worried because of the company’s relationship with a state. And it isn’t SOME state. Saudi Arabia is well known as related to human rights abuses and with some dark things too. Have you ever asked yourselves why the main support for the company comes from the Saudis and the Middle East?
    But the main concern comes from investment index providers such as S&P Dow Jones, MSCI, or FTSE.
    They all said they will include Aramco shares into their indices. What are the consequences? Well, the investors from all around the world, pension funds and other funds will be forced to buy these Aramco shares.
    The dilemmas about Aramco investing came directly from the state of Saudi Arabia. 

    Saudi officials said that the government will sell more shares after the IPO. If the Saudi government does so, it will overwhelm the market with additional shares. And the bubble burst is coming! 

    The sale of more shares by the government could easily cause the price of Aramco shares to decrease notably. 

     

    Bottom line

    We don’t want to say that you should or shouldn’t invest in Saudi Aramco. We just want to say that you should avoid Aramco-mania. Stock investing is risky. In the markets, nothing goes up permanently. So, keep this in mind. And invest smartly and carefully.

  • Saudi Aramco Is Moving To A Publicly-traded Company

    Saudi Aramco Is Moving To A Publicly-traded Company

    Saudi Aramco Is Moving To A Publicly-traded Company

    by Gorica Gligorijevic

    Saudi Arabia announced on Sunday that it had approved plans for Saudi Aramco to go public
    This I.P.O. could be the biggest ever, but does it fall short of Saudi Arabia’s goals.

    Saudi Arabia announced on Sunday that it had approved plans for Saudi Aramco to go public. This is one of the world’s most gainful company is close to its long-wanted goal: to become a publicly-traded company. The Saudi Capital Market Authority said that Aramco intended to sell an undefined percentage of its shares. Trading could easily start next month. 

    Bankers on the event have reported the Saudi government that investors will probably value the company at between $1.6 trillion to $1.8 trillion.

    Saudi Arabia has to compromise on valuation and said it is ready to accept less than the $2 trillion, the amount that Crown Prince Mohammed bin Salman has said the oil giant is worth. According to media reports, the valuation could easily be around $1,5 trillion.

    The zeal to take a lower valuation shows the prince has confidence in his judgment and that he is sure of $2 trillion estimates. This IPO is a central part of the Vision 2020 plan to modernize the Saudi economy. This is a very competitive plan and we can recognize the plan to surpass the $25 billion by Alibaba Group Holding Ltd. in 2015.

    Aramco is examining increasing next year’s dividend by an additional $5 billion to $80 billion to get more investors. 

    Saudi Arabia’s most prosperous families are supporting demand for IPO, but bankers are still attempting to approach to international investors. With that purpose, they have invited money managers in London for a series of meetings next week. An increase in the dividend will support that effort.  Aramco’s dividends are still below that paid by oil giants like Royal Dutch Shell Plc and Exxon Mobil Corp.

    More about Saudi Aramco privatization

    The partial privatization of Aramco will be the biggest shift to the Saudi oil industry since the company was nationalized in the 1970s. Saudi Aramco pumps 10% of the world’s oil from the fields under the Saudi deserts. It is Saudi’s most profitable company globally and the spine of the country’s financial and social security. 

    Taking a main position in the deal has been one of the biggest contests for global banks. More than 20 banks are working on this deal, with the leading roles have Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co.

    The way to today’s resolution hasn’t been so nice. The investors refused the Prince Mohammed’s $2 trillion valuations, the initial plan to list Aramco in New York or London was discarded in favor of a Riyadh flotation only.

    Aramco will be faced with the global movement against climate change that’s targeted the world’s largest oil and gas companies. Since the demand for oil is rising all this century Saudi Aramco has to meet that because using oil will peak in the next few decades despite rising electro-cars.

    Saudi Aramco could be listed next month

    This means the globe’s most valuable company will be traded on the Saudi bourse only. The exchange relaxed a 49% limit for foreign strategic investors in shares of listed companies for foreign investors a few years ago. Saudi Arabia has launched a lot of reforms in the past several years to make it’s stock market attractive to foreign investors.

    Saudi Aramco’s dividends

    In an effort to make the stock more winning, Aramco wants to pay $75 billion in dividends next year. That would provide investors a yield of 3.75% but only in case if the company meets its goal of a $2 trillion valuation. To be honest, it is a nice yield but still lower than the other big oil companies are paying.

    Saudi Aramco is moving forward with an IPO and that could break records and provide investors the opportunity to hold a part of this the most profitable company in the world.

    But the Capital Market Authority of Saudi Arabia only said today that it has approved an application to list shares in Saudi Aramco and not say when the IPO would take place or give details on its size. Al-Arabiya, the Saudi news channel, said on Sunday that Aramco would release the prospectus for its listing on 10 November.

    Aramco has large oil reserves and huge daily production. Opinions on how much the flotation will grow are broadly different. Even if it is no higher than $1.5 trillion selling 1% of the company would bring $15 billion. Hence, selling 2% could make $30 billion, surpassing the record $25 billion IPO by Alibaba (BABA) in 2015.

    Aramco is supposed to sell 5% of the company on two exchanges. An initial listing of 2% on the Tadawul Saudi bourse next month and a 3% listing on some international exchange, that is not selected yet.

    Bottom line

    By doing so (getting the IPO), does Saudi Arabia show its hopes and, moreover, the interests that no one will find a replacement for oil?
    What if this IPO brings Saudi Arabia to among the richest countries in the world, right along with the US and China? Some people are already worried about that.
    The time will tell who was right.

     

  • Invest in Saudi Arabia

    Invest in Saudi Arabia

    Invest in Saudi Arabia
    The Saudi Arabian economy, one of the strongest and most stable in the region, and has started a phase of transition. That is a great opportunity for investors.

    By Guy Avtalyon

    Invest in Saudi Arabia can be profitable but it is connected with some drawbacks. Saudi Arabia is the biggest economy in the Middle East. Its economy is growing, but at a more moderate rate than earlier, for example, during the oil growth at the beginning of this decade. Saudi Arabia’s government is spending about 7% to US$295 billion this year to encourage economic growth.

     

    The economy is still supported by rich oil reserves, but oil prices are at the lowest in the past decade. 

    The Saudi government has endorsed a national plan called ‘Vision 2030’. This plan aims to modernize and diversify the economy. They have entrusted a huge quantity of assets to the Public Investment Fund (PIF). The goal is to increase employment, especially in the private sector, in retail, healthcare, and education.

    Foreign investments are welcome too. To encourage them, the government opened the Saudi Arabian Stock Exchange, named Tadawul. 

    Tadawul

    Tadawul is the only securities exchange in Saudi Arabia with about 150 listed companies and itis controlled by the Capital Market Authority. The exchange is weighted towards the financial services and energy industries but covers many other industries. 

    The Tadawul All Share Index (TASI),  is very similar to the S&P 500. 

    The foreign investment rules are now more liberal than ever. The most important, listings and capital raises in Saudi Arabia were strong over the earlier year, while capital markets in other regional and oil-driven economies have dried up.

    Saudi Arabia can be a very attractive investment target when oil prices are rising. At the same time, it is the trickiest part. The country is depending on crude oil and it is a limited source. Despite the government’s efforts, the diversification in other industries may not show the sustained result. We will see. But there are other benefits of investing in Saudi Arabia.

    Relying on oil has some crucial benefits. Oil revenues are directed to the economic development programs managed by the government funds. Further, the government has already taken steps to privatize some industries, for example, telecom and electricity. Actually, they want to open up their market to fresh investment from foreign investors and especially in non-energy markets.

    Where to invest in Saudi Arabia

    Saudi Arabia has currently over 500 domestic funds in operation. That is the largest number of funds in the Middle East by a large margin. You can invest in asset classes such as listed equities, money market instruments, and corporate and sovereign debt. Also, private funds invest in real estate. That is the main asset for high net worth and institutional Saudi investors. Nowadays, there is an increase in private equity and venture capital due to the support of the CMA, SMEA, and other government authorities and various stimulus programs. 

    Saudi Arabia adopted seven Guiding Principles for Investment Policymaking in 2019. It includes among others, non- discrimination, investment protection, investment sustainability, transparency, protection of public policy concerns. And foreign investors are there.

    For example, Aubin Group from the UK invested $743 million, DuPont, and Alphabet. 

    The stock of foreign direct investment rose last year and reached $230 billion. Foreign investments are essentially located in the chemical industry, tourism, fuel, automobiles, etc.

    The case of Saudi Aramco

    With a net income, last year of $111.1 billion, Saudi Aramco, the kingdom’s oil company, and the world’s most profitable company is not listed in Tadawul.

    And the criteria for listing on the Tadawul aren’t as rigorous as some other exchanges like the London Stock Exchange or the New York Stock Exchange, for example.

    “What we have always said is that Aramco is ready for listing whenever the shareholders make a decision to list,” Aramco President and CEO Amin Nasser told recently to reporters at the World Energy Conference in Abu Dhabi.

    “The primary listing is to list locally but we are ready also for listing outside in other districts,” Nasser added.

    Why invest in Saudi Arabia

    If you want to invest in Saudi Arabia you should know some things. Saudi Arabia is ranked as 5th in the world for fiscal freedom. Also, it is the 3rd most rewarding tax system in the world. This country is among the 20 biggest economies and the biggest in the Middle East. It is one of the world’s fastest-growing countries and the largest free market in the Middle East. Also, Saudi Arabia is the biggest recipient of Foreign Direct Investment (FDI) among the Arab countries. The downside of investing in Saudi Arabia can be limited resources. But you can find plenty of companies to invest in. For example, it is recommended buying these stocks: THOB AL ASEEL CO., or ABDULLAH SAAD MOHAMMED ABO MOATI FOR BOOKSTORES CO., or BAAZEEM TRADING CO. Check them.

    But stay tuned, there will be more about Saudi Arabia companies good to invest in.

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