As The Saudi Economy Implodes, A Fascinating Solution Emerges: The Aramco IPO
Earlier today we reported that when it comes to Saudi Arabia, things are going from bad to abysmal, with the market is clearly aware of it. Saudi riyal forwards hit their highest level in almost two decades as oil plummeted: twelve-month forward contracts for the riyal climbed 260 points, and set for the steepest close since December 1996 on growing speculation the world’s biggest oil exporter may allow its currency to slide against the dollar for the first time since 1986 (incidentally, Bank of America's "Number One Black Swan Event For The Global Oil Market In 2016").
Alongside this, Saudi default risk has also been rising, and as of this morning Saudi CDS traded wider than Portugal:
The reason for this suddenly quite dire outlook on Saudi Arabia is that as the kingdom has made very clear over the past year, it will continue with a strategy of oversupplying crude even if it means sending its fiscal deficit soaring, forcing the country to draw down on its reserves, and load up on debt.
In other words, as long as Saudi Arabia refuses to relent and allow oil supply to catch up with demand, thereby pushing the price of il higher, it is slowly crushing not only its competitors such as the high-cost OPEC producing nations and marginal US shale companies, but itself as well. The biggest question is how much longer Saudi Arabia can continue this self-punishment, one which recently spilled over with Saudi Arabia forced to boost gas, water and electricity prices and in effect, dismantle its welfare state, risking widespread social unrest.
And then earlier today everything changed when Saudi Arabia's unveiled what may be a stunning Hail Mary: one which is great news for the suddenly liquidity challenged Saudi government, and is very bad news for the future price of oil.
According to the Economist, Saudi Arabia is contemplating taking Saudi Aramco - arguably the world's most valuable company - public. To wit:
SAUDI ARABIA is thinking about listing shares in Saudi Aramco, the state-owned company that is the world’s biggest oil producer and almost certainly the world’s most valuable company. Muhammad bin Salman, the kingdom’s deputy crown prince and power behind the throne of his father, King Salman, has told The Economist that a decision will be taken in the next few months. “Personally I’m enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.”
The potential listing comes as Saudi Arabia grapples with the damage wreaked on its economy by an oil-price collapse to below $35 a barrel, as well as mounting tensions with its arch-rival Iran, following the execution of Saudi cleric Nimr Baqr al-Nimr in early January. It is just one possible step in an ambitious plan to balance the budget and throw open the country’s closed economy.
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The upstream part of the business would be most attractive to investors. At 261 billion barrels, Saudi Aramco’s stated hydrocarbon reserves are more than ten times those of ExxonMobil, the largest private oil company. Saudi Aramco is also one of the world’s lowest-cost oil producers, thanks to the ease of pumping oil in Saudi Arabia.
The financial community immediately sprang up to analyze what a deal like this would mean.
According to Bloomberg oil strategist Julian Lee (who worked for the former Saudi oil minister Sheikh Yamani) the possibility that Saudi Aramco might sell shares to investors is unlikely to bring degree of transparency that oil, equity markets might want.
If there were to be an IPO, investors’ wishlist for information about Saudi Arabia would include: detailed published, externally verified reserves; similar estimates of spare output capacity; published, audited report and accounts, and so on. Lee notes that it would be challenging for Saudi Arabia to share detailed information on reserves, production capacity as those are often regarded as state secrets in oil-producing nations; any possibility of reserves, output capacity being downgraded by external assessors would be unacceptable to Saudi Arabia.
Furthermore, the IPO would be unlikely to happen on world’s biggest exchanges, which would require greatest transparency.
Others were comparably skeptical: according to SocGen's Mike Wittner, the IPO of Saudi Aramco wouldn’t immediately impact oil prices, adding that a potential IPO doesn’t indicate any change in Saudi strategy of letting the oil price do the job of managing global supply.
He is correct: it wouldn't immediately impact prices; it would however have a huge impact on oil prices over the longer run.
Because reading between the lines, what this announcement really means is that Saudi Arabia is scrambling: for it to resort to partial privatization of its crown jewel, which is what selling stake in an IPO would mean, it suggests two things: the government is desperate to obtain liquidity at any price, and it means that if successful, the Saudi regime will be able to continue its strategy of crushing its high production cost competition for a long time thanks to the new funds.
Indicatively, selling 5% in a company valued at $2 trillion would mean a $100 billion liquidity check to the Saudi government, or enough to fund the country's reserve outflows for at least year, and perhaps as much as two - a period of time that would be sufficient to put virtually all marginal shale producers, as well as a Venezuela or two, out of business.
In conclusion, keep a close eye on the Saudi capital raising plans, especially if they involve privatizing even more state assets: if that is the route the crown princes have decided to take, then Saudi just found a brilliant loophole to its near-term liquidity troubles, one which will surely lead to its victory in the global race to the crude bottom.
There is really just one key question: who would buy this IPO?
After all, not a single oil-exporter would sign up for this (they would be handing over money to their own executioner) while US firms would indirectly be crushing their own parallel investments in shale and its numerous derivatives, with who knows what unintended consequences as the shale bankruptcy wave finally strikes.
Then again, for the "really rich people", a $50 or even $100 billion check is nothing at the end of the day. It is, however, a huge political statement, one which may serve as the foundation of a new post-petrodollar axis. We, for one, are extremely curious to find out just who ends up paying it.
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They've been water injecting for years. This was forcasted over a decade ago publicly by someone who is no longer alive (hot tubs will do that to you).
The CIA and US Gov have been planning for this for a long time. Why the arab spring now? Why ISIS now? It's all about oil. The world economy runs on the stuff. You control oil and you control the world economy.
YOU'RE RIGHT - smells like the major field is watered out!
they have no blowback for SEC issues on fake reserves - whose coming to serve them?- beautiful
What's the problem? The Public Debt Ratio is minuscule, compared to the West.
Their BS can last a lot longer that peeps here can stay unemployed + solvent.
They need a few of them NK H-bon-bons dropping down on Riyadh.
Maybe they know the reset is coming and the new world currency will be pegged to output levels.
Who dares to trade the 3:30 ramp today?
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Unfricken believable... But then again look at what they've done and where they NOW are?!!!
Not good for any of the parties committed that's for certain!
Why are they so desperate for money? How much does it cost to provide free camels for their citizens to fuck?
If you turned 65 before King Salman's birthday on December 31, 2015, you were eligible, had you applied, for a Courtesy Comfort Camel provided for life, the CCC Program, similar to the anticipated credit rating of the country assuming oil prices do not rebound or that ISIL doesn't get in your knickers. If however, your 65th birthday was after King Salamander's, on December 31, 2015 but before December 31, 2000, where the math doesn't work but the seasonals have been provided by the BLS, you will instead can receive a goat should you so elect. Those not eligible under either plan will receive a Brand New Hello Kitty Vibrator, Fleshlight and Sperm Storage Sponge combination tool, batteries not included.
Because they stupidly started a war with Russia which they have just figured out they cannot possibly win.
Dying for the House of Saud is work for proles. Wall Street aren't quite ready to die in a nuclear war for the likes of some camelfuckers on the other side of the world left over from the 7th century---because that would be the result of any serious attempt to defend the Sauds from Russia's wrath.
So basically Saudi Arabia is going IPO.
I am going to IPO myself. At todays valuations I'll be worth at least $10,000
You'd be worth more as parts.
You too can now be the proud owner of SA's depleting oil resources in times of high risk do to megalomaniacs indiscriminantly bombing multiple countries, mass executions and goat raping extravaganzas.
Desperate as hell! Russia wins.
The IPO might be worth much more than the available oil? (it's the edison/tesla elec vs the rockefeller kerosene....the future is not oil or keorsene so they cash out now)
Or, a boatload more, should oil hit $300 / USD. No, the price of oil will never go back up, right?
After all, nuclear power is so safe and wind/solar is handling like 10% of global needs.
Also, not a lot of investment will be going to alternatives with oil at $30/b - at least until another 100 million Yukon XLs and Suburbans are delivered and gas spikes back to >$4/gallon.
NG? Kerosene is also expensive but not so many using it.
So, now the banks will have control over Saudi Oil and not the Saud themselves ... how precious.
No one could have seen this coming in August of 2014 when the banks started the assaut on oil and Saudi Arabia ... oh, wait ... someone called it and said it was NOT an attack on Russia, at all.
I smell the stench of Goldman's dirty Sachs.
grandad grumps, i find your observation interesting, especially if what lumberjack posted on a much earlier thread, is true---that the pilots flying the jets that bombed the iranian embassy were IAF. it's possible SA has sold itself to israel & israel not only gets SA oil, but to fight the quds in yemen & the golan prior to actually firing directly at iran.
I am thinking this is all a family affair... a very ancient family affair, with the vast majority of the human population being used as simple pawns and disposable assets.
The world seems to be a lot more complicated than people believe. The vast majority of people prefer to believe simple lies as opposed to complex truths.
GG, yes, i completely concur much is a very old convoluted feud. however, israel, whilst not being family & recently created believes it is even more ancient & in fact the father of all & nuttyhatesgoy's intentions regarding acquiring more land & power are blindingly obvious. if the saudis have decided, or have as many speculate aligned themselves with israel for years, they shall be treated as russia was when the banksters ruled. iran mayn't be laughing but certainly smiling. tick tock.
The Princes are looking for an exit vehicle - they will distribute the shares and be part of a secondary
Townhouses in Paris / London / LA with Garages loaded with Ferrari's and Binders full of Women!
The Press for Iran
And what will that get them? Sounds boring to me.
Most family businesses do not last past the third generation. The kids are spoiled, unconnected and want to cash out.
You mean they would have to disclose proven reserves? Dont think so.
I shall be very interested which elites will invest in these shares. Could well develope into a very interesting story in it's own making this.
Lemme see .... Rothchilds, Soros, Rockefellers ... who'm I missing?
Oh fuck yeah, the Clinton Global Initiative, just to hedge the bet she wins.....
Rothschilds... I agree
I'm listening to some assclown on CNBS trying to compare a balance sheet from pre 2007, and a manufacturing sector from the 50's-60's.
The fed balance sheet keeps growing via their proxies! Citadel, and external central banks. BITCHEZ
The fed balance sheet is still just under 5 trillion dollars. Any sane human knows where this is going.
Bushies, you forgot them.
Now who would basically want to own 5% of Saudi Arabia?
1) CHINA
2) Japan
3) S. Korea
4) India
The United States Strategic Petroleum Reserve is 715m barrels. At $30 per barrel, that's a value of $21.45 Billion USD.
For $100b you'd get the right to tell anyone in the world to fuck themselves, and have a reserve of 5% of 261 Billion Barrels of oil, plus some income from the sale of current supply. You'd have the rights to about 10 billion barrels underground. You'd also have a currency with the strongest backing since the world went off the gold reserve.
This all sounds good until the Saudi's chop your fucking head off! Then again, that's just like Obama sicking the EPA and IRS on your ass. Same outcome, except you don't have to get fucked by Obamas and Clintons. Also, those Sheikhs like to party like it's 1999, or 749, depending on who's on the plane with them.
China just basically bought Zimbabwe at a fire sale. Why not take some of the Middle East next? They have a great way of making friends. Yuan me to tell you how they do it?
dvfco, what about the China/Russia partnership? The Russians and Iranians are partnered, and the Iranians and Sauds are at each others throat now, so how does a China/Saudi relationship work?
too bad they didn't think of that two years ago.
It will not happen with honest information since it has been reported that the old and "reliable" fields have far less reserve capacity, such as pumping in water to build pressure to get the oil out with a 90% water return - not good.
I will have to say 2015 was interesting and looks like 2016 will be much more; I hope we do not end up with King Obama; that would mean some serious false flag events in a city and or state nearby.
A dirty bomb in Manhattan, near the FED's gold vault, just before Inauguration day sounds about right.
The scripts from ads.lanisads.com are making the site unusable for me.
ghostery and adblock plus. haven't seen an ad in years.
Firefox with AdBlock Plus is a good combo.
I have noticed if I click in a blank area in the top area (nervous habit) it takes me to ad relates sites and twitter. I run uBlock, Ghostery, Flashblock and recently did full system scans for antivirus, malware and spyware. Dumped history, cookies etc. Still get random weird shit only on ZH. Not a lot but something has changed. You know the advertisers are trying to get around adblockers, they will succeed somewhat.
WaterFox with uBlock Origin.
Think of the fees Goldman Sachs will make on this deal........
maybe it is a halal ipo only via halal banking connecting every muslim east of saud except china?
why not, a russian world bank, a western world bank and now a muslim world bank
you too, can help finance terrorism and it's all usa gubbermint approved!
China could buy it all up, but the US would be crazy to pass it up if they get first dibbs.
what would j. paul getty say?
This tells me that agents of The Great Red Dragon has put up with the Saudis long enough, and if it goes public, will take control in order to further its goal "to own the earth in fee-simple." They will be able to get legal title.
Ya, but that title will be worthless when nationalized five years hence.
Will they now? Let's see them convince the Russian cavalry to enforce it.
The Saudi royals see the writing on the wall. Golden parachute time. If the timing works it is a brilliant move. Speaking of move, they will do that. Probably already have the mansions in the West bought, furnished, and greens-keeping up to date.
"huge impact on oil prices over the longer run"
...is ther going to be a 'longer run'?
How much oil does a world population of 100 million need?
Central banks will be the buyers so this is a defacto reserve currency. Saudi regional hegemony becomes a matter of necessity for the CBs buying into this.
Brilliant brilliant play.
Also, what others posted previously that you can wipe out ownership / dilute ownership with the stroke of a pen - just like what the federal reserve does with QE.
dp