Depth report

　　

Saudi Aramco's assets valued at US$2 trillion is equivalent to two Apples plus Google.

    According to data, this national oil company holds approximately 261.1 billion barrels of oil assets, accounting for 15% of the world's proven oil reserves; this reserve is 12 times that of ExxonMobil, the world's largest listed oil company by market value.

    The value of Saudi Aramco is equivalent to the total market value of other listed oil and gas companies in the world, or US$2 trillion. According to the plan to sell 5% of the shares, the scale of Saudi Aramco's IPO may reach 100 billion US dollars, which is four times the largest IPO fundraising scale so far. At present, the world's largest IPO fundraising scale is maintained by the Chinese e-commerce giant Alibaba, with a fundraising scale of 21.8 billion US dollars.

    In January 2016, Saudi Arabia’s new crown prince Salman announced one of the important plans for Saudi reform, which is to list some of the assets of Saudi Aramco. This is likely to be the largest initial public offering (IPO), exciting the global capital market.

    As the world's largest oil producer and the lowest-cost oil company, Saudi Aramco has a lot of "selling points". Ten years ago, a research report jointly issued by the Financial Times and McKinsey & Company listed Saudi Aramco as the world's largest private company.

    Salman once revealed that the value of Saudi Aramco is equivalent to the total market value of other listed oil and gas companies in the world, or US$2 trillion. According to the plan to sell 5% of the shares, the scale of Saudi Aramco's IPO may reach 100 billion US dollars, which is four times the largest IPO fundraising scale so far. At present, the world's largest IPO fundraising scale is maintained by the Chinese e-commerce giant Alibaba (Alibaba), with a fundraising scale of 21.8 billion US dollars.

One of the challenges of Saudi Aramco's listing to maintain a high valuation of US$2 trillion

    With the gradual advancement of the seemingly logical "Deal of the Century", the market after calming down has a deeper understanding of Saudi Aramco. Some people questioned that under the low oil price environment, Salman's asking price was too high, and the high valuation of US$2 trillion has become one of the challenges facing Saudi Aramco's listing.

    Not only that, as a state-owned oil company, whether Saudi Aramco can be transparent and open enough to provide data such as dividend forecasts has also become investors' doubts.

    According to media reports, Salman has been involved in IPO matters, which violated the "freedom and openness" claimed by the reformer, weakened investors' interest, and ultimately affected the IPO. Some opponents in Saudi Arabia even suggested that borrowing is more suitable for Saudi Arabia than going public.

    Saudi Aramco was established in 1933. At that time, the Saudi government and California Standard Oil Company (the predecessor of Chevron in the United States) established the California Arabian Standard Oil Company in Saudi Arabia. In 1944, it was renamed Arabian American Petroleum Company (Arabian Oil Company). American Oil Co.). The US Texaco Oil Company, Exxon Corporation and Mobil Corporation have also invested in the company.

    This oil company, which owns its own administrative system, radio station, airport, port, education and health facilities, and even security forces in Saudi Arabia, monopolizes Saudi Arabia's oil resources and contributed 60% of the Saudi government's financial funds in 2016.

    In April 2016, Saudi Arabia adopted the "Vision 2030" strategic plan, with a view to promoting economic transformation and diversified development through various means in the next 15 years, reducing dependence on oil, and revitalizing the society.

    Saudi Aramco stated that the listing meets the requirements of Saudi Arabia's economic transformation and getting rid of oil dependence, and is part of the aforementioned strategic plan. However, according to media reports, the deeper reason for Saudi Aramco's IPO is that Saudi Arabia's fiscal deficit is growing and it is in urgent need of funding.

Unbalanced oil supply and demand, oil-producing countries compete for market

    The report pointed out that due to the imbalance of oil supply and demand and the competition between Saudi Arabia, the United States, and Russia for market share, international oil prices have been falling for 18 consecutive months since mid-2014. The Saudi petro-dollar has shrunk severely, affecting government finances. On balance, the fiscal deficit of the world's largest oil exporter has risen to nearly US$98 billion.

    The forecast data released by Capital Economics, the capital operating company of the United Kingdom, shows that after years of huge budget surpluses, Saudi Arabia's current account deficit will rise to 20% of its gross domestic product (GDP).

    The International Monetary Fund (IMF) predicts that to achieve fiscal balance, the international oil price needs to be at a high of US$106 per barrel. If oil prices remain at a low level of around US$50 per barrel, Saudi Arabia’s strong cash flow will not last for a long time. It will be more than five years. If you want to get sufficient funds to achieve a balance of payments, boost the Saudi economy, and provide assistance for Saudi Arabia's economic transformation, using international investment to increase income becomes one of the options. Listing the "Big Mac" of Saudi Aramco has also become the best way to obtain international investment.

    In Salman’s view, Saudi Aramco’s listing is in the interest of Saudi Arabia’s market and is also conducive to the interests of Saudi Aramco. This is based on a valuation of US$2 trillion.

Compete for "Big Mac"

　　 When a company chooses a listing location, it usually considers several major factors such as the market's refinancing capabilities, market activity, market capacity and capital scale, legal and regulatory requirements, listing locations of companies in the same industry, and listing costs.

　　 According to the plan, Saudi Aramco will be listed in Saudi Arabia and at least one overseas market. The consideration of overseas listing places includes China, Japan, London and New York. The "strongest in the universe" IPO strikes, and global exchanges have also begun to show their magic, striving to get a share of the pie.

　　 The Wall Street Journal stated that Saudi Aramco has notified three banks, JPMorgan Chase, HSBC Holdings, and Morgan Stanley, to act as the lead underwriters for the company's proposed initial public offering, and the proposed issue of shares may raise US$100 billion to US$150 billion. But the huge temptation to go public will ultimately be the winner. The company's plan shows that 2018 may be the result. However, the "Wall Street Journal" predicts that due to the complicated listing of Saudi Aramco, the final listing time may be delayed until 2019.