Saudi Aramco: The message from the world’s biggest and wildest IPO | Hacker News Reader

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

economist.com

42 pointslxm57 comments

Open articleView on HN

"Intention to float IPO" (official document):

https://www.saudiaramco.com/-/media/images/investors/aramco-...

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

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?

It also looks like thy couldn't subscribe if they don't have children, while presumably Saudi men can subscribe if married to a foreigner, if they have children or not. It's fascinating what goes through the heads (or doesn't) of people writing rules like this.

Yes, that is the implication. Saudi Arabia oppresses women.

Who knew feminism and climate awareness would tie up so nicely in the end? More renewables -> less oil -> less money for Saudi arabia

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?)

> [...] 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.

Why don't you enlighten us to women's role is Saudi society, instead of telling me I'm wrong tell me how woman are viewed.

There's lots wrong with Saudi laws but 99% of HN readers, including yourself I am sure, know that no woman is the property of any man in Saudi. I've seen many comments about Islam from hyperbole to downright lies intended to promote hate. These comments are frequently allowed to slide without any rebuttal or attempt at moderation. What might seem like hyperbole to you is read as truth by others, and there is a tidal wave of hate and filth out there (not on HN) relating to Islam and muslims. In future I intend to call these comments out on HN instead of ignoring them as I have lazily done in the past, because in some ways they have a bigger impact than the simple slavering on right wing hate sites. My karma will almost certainly run dry at some point, because of the human tendency to dislike being called out for this sort of stuff, at which point I will have to return to letting it slide once more.

Call me out on it if it's wrong, to me it was more a generalisation, I don't actually think they are considered property. But women in SA have fewer rights and many of these are dependent on the male relative (father or husband). So feel free to call out inaccuracies here on HN, but know it goes both ways. Make sure you call out the inequality of women in SA and don't gloss over it. So in your initial response to me you should have said I was wrong, they are not property, but they are certainly considered second class citizens with SA. To say "they aren't property" and leave it at that is disingenuous at best.

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

It seems like there's a presumption that a Saudi woman who marries a foreigner will take his citizenship. Eg in [1]:

> 17 - Considering Articles (132 – 133) of Legal Civil Procedures System, the Saudi female does not lose her Saudi Citizenship if she married a foreigner, unless she is allowed to leave the Kingdom with her husband, and joined her husband's nationality according to statutory laws of this nationality.

> 18 - Saudi wife of a foreigner has the right to recover her Saudi Citizenship in case of divorce and returning to the Kingdom.

So, although it's explicitly not the case that a Saudi woman automatically loses Saudi citizenship on marriage, reading between the lines a bit, it seems that it's common that she does in practice, because she takes her husband's nationality. Perhaps it's common for the citizenship rules in other Arab countries to require that? So if a Saudi woman marries a Emirati man, maybe Emirati law requires that she becomes an Emirati citizen, so she stops being a Saudi citizen. This is speculation, though.

[1] https://www.refworld.org/pdfid/3fb9eb6d2.pdf

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 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.

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.

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...

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?

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.

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?

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...

> 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.

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.

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

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."

http://archive.is/DQUEd

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.

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.

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.

Same as WeWork, offload the risk to the public now that the major profits have been taken.

Probably because in 10-15 years time an oil company won't be able raise any significant amount of money. Major investors have already started divesting from fossil fuels.

If they're smart, the money will be invested in creating the post-oil economy SA will need. They could keep on being an important energy exporter, sunlight is very abundant there after all.

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.

Cash in now so that it doesn't become a stranded asset in the future.

> 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.

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

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.

This is only listing on Riyadh’s stock exchange

Good luck with jumping through all those hoops to invest and expecting recourse

what would prevent it from getting rolled up in an ETF and listed on, say, Nasdaq?

that does nothing to protect the underlying asset.

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.

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/

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

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

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.

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.

> 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?

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

Ah, thanks. That’s a ‘we’ I am not part of.

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.

It looks like the actual target of the drone was the Egyptian al-Banna. In any case, IMHO either you are able to target active terrorists without judicial overview or you're not, whatever their citizenship. I'm a Brit, so no skin in that particular issue, but for the record I have no problem with British jihadists that joined ISIS getting bombed. They made their choice.

Right, but in the US, there's a big difference between murdering someone and taking investors' money.

They might find that a completely acceptable tradeoff for hundreds of billions of dollars. Believing the Saudi government cares about the rule of law is a questionable proposition at best.

Reply on news.ycombinator.com