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Saudi Aramco: The message from the world’s biggest and wildest IPO

economist.com

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Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#41

Post by awakeasleep »

reallymental wrote: post #35
publicrootkey wrote: post #34

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…

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.

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?

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#42

Post by bloak »

dcolkitt wrote: post #31
tuberelay wrote: post #22

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.

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 capit…

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.

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#43

Post by thaumasiotes »

reallymental wrote: post #35
publicrootkey wrote: post #34

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…

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.

> 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.

Well, if the goose is currently valued at the net present value of the original income stream, it does make sense to sell if its income stream is going to falter. That's a simple case of selling something for more money than it's worth.

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#44

Post by aembleton »

awakeasleep wrote: post #41
reallymental wrote: post #35

Earlier quoted context omitted.

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.

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?

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

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#45

Post by Pyxl101 »

abdulhaq wrote: post #33
celticninja wrote: post #20

Earlier quoted context omitted.

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.

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

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...

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...

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?)

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#46

Post by aembleton »

kqr2 wrote: post #10

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...

Non-paywalled https://www.irishtimes.com/business/ey-entrepreneur-of-the-y...

"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."

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#47

Post by tempguy9999 »

thombat wrote: post #27
Alex3917 wrote: post #13

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.

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.

It was not used much as food. 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.

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#48

Post by tempguy9999 »

Alex3917 wrote: post #13

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.

Combustible oil from the ground has been known about since antiquity.

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#49

Post by juskrey »

celticninja wrote: post #20
Pyxl101 wrote: post #17

Earlier quoted context omitted.

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?

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.

To spare writing -ism words about Saudi, just write barbarism.

Re: Saudi Aramco: The message from the world’s biggest and wildest IPO

#50

Post by lordgrenville »

tuberelay wrote: post #22

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.

As usual Matt Levine has a helpful take on this:

'Saudi “domestic investors could probably provide enough support to achieve that $2tn valuation.” Those domestic investors will probably pay the $2 trillion out of some combination of enthusiasm and, uh, “enthusiasm”...

'Look if WeWork could have ordered banks to lend money to investors to fund share purchases, and if it could have threatened people with arrest and torture if they didn’t buy shares, then I am pretty sure its IPO would have gone well. Aramco more or less can, which means that (1) there is a chunk of pretty inelastic demand at $2 trillion and (2) even if you are a foreign investor who thinks that the $2 trillion number is laughably high, you will be very diplomatic about expressing that in meetings with Aramco officials.'

https://www.bloomberg.com/opinion/articles/2019-10-28/effici...

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