High expectations: as the release of Saudi Aramco in stock exchange can affect the price of oil

High expectations: as the release of Saudi Aramco in stock exchange can affect the value nepticulidae link
16:30

Vladimir Agoev
On Friday, November 8th, the world prices for oil decrease after a sharp rise since the beginning of the month. Fluctuations of quotations of experts associated with the anticipated IPO of the Saudi company Saudi Aramco. The largest oil Corporation in the world can put its shares on sale before the end of 2019. Currently, Saudi raw materials giant bypasses the cost and profits of even such technology leaders as Apple, Amazon and Microsoft. As the emergence of Saudi Araramco in the global stock market may affect the price of oil at RT.

  • Reuters
  • © Ahmed Jadallah/File Photo

On Friday, November 8, world oil prices fall during global trades. The energy commodities Brent fell 1.5% to $61,4 per barrel. This is evidenced by the exchange ICE in London.

Oil prices are recovering after significant growth since the beginning of the month. So, from 1 to 7 November quotes grew by more than 5% — from $59 to $62-63 per barrel. As noted RT interviewed experts, global investors reacted positively to news of the imminent global stock market of Saudi state-owned Corporation Saudi Aramco.

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November 3, the largest oil company in the world officially announced the intention to hold the first offering of its shares (IPO) on the stock exchange Saudi Arabia Tadawul. According to Reuters, securities trades can begin as early as December 11.

«The emergence of information about the IPO Saudi Aramco was one of the reasons for the increase in commodity prices. Investors have long been waiting for signals from Saudi Arabia, because the same procedure had to be launched in 2017, but was canceled because of geopolitical and economic problems of the country. If the IPO occurs, it will be the largest in the history of world stock market», — said in an interview with RT chief strategist «UNIVER Capital» Dmitry Alexandrov.

Initially, the Kingdom planned to sell 5% of the securities Saudi Aramco and attract $100 billion. However, the final volume may be slightly below previously announced levels. According to media reports, at the moment, the Saudi authorities intend to place about 2% of the shares. However, the final figure will be announced only after the formation of investors ‘ bids.

The idea IPO Saudi Aramco has been offered in 2016, and has become one of the main points of the reform program of Saudi Arabia «Vision 2030». The strategy aims to change the structure of the economy and reducing dependence on the Kingdom’s oil. According to experts, the implementation of these plans requires a lot of budget injections. A significant portion of these investment authorities are going to attract through the sale of shares of Saudi Aramco.

«The main purpose of IPO is to attract investment in the Saudi market and increase the level of the stock exchange Tadawul on the background of other global financial markets. Such a step will strengthen the desire of investors to actively invest in the Saudi market. Thus, the government can implement the necessary diversification of the economy to relieve the country from dependence on oil,» — said in an interview with RT economic analyst Ahmad Yasin.

Note that even in 2017, the world’s largest stock exchange began to fight for the right to become a platform for the IPO of Saudi Aramco. For example, Donald trump has urged Saudi Arabia to place the shares of the company in new York. At the same time, the British government actively promoted the idea of listing in London and gave the Saudis a loan guarantee of $2 billion.

According to experts, similar interest of market players to securities of the oil companies is largely connected with the desire of investors to buy shares of the most profitable companies in the world. As previously counted in the international rating Agency Fitch, in 2018, the Saudi Aramco profits before interest, taxes and the cost of purchasing and upgrading equipment reached $224 billion.

At the same time, according to the international rating Agency Moody’s, the net profit of Saudi Aramco at the end of last year amounted to about $111.1 billion For this financial indicator, the commodity giant beat Apple ($59.6 billion), Samsung ($35.1 billion) and managing Google holding Alphabet ($30.7 billion).

«The high profitability of Saudi Aramco provided a low cost produced in Saudi Arabia oil and also easing the tax burden on the Corporation. In 2017 in preparation for the IPO corporate taxes for the company was reduced from 85 to 50%. In result, Saudi Aramco has been able to dramatically increase profits and increase dividends,» — said in an interview with RT expert-analyst GK «FINAM» Alexey Kalachev.

A fair assessment

According to Alexey Kalachev, to date, Saudi Aramco controls 100% of the production and export of oil in Saudi Arabia. We are talking about approximately 10% of global oil production and 15% of oil export in the world.

As previously stated, the crown Prince of the Kingdom of Mohammed bin Salman, the total value of the Corporation is estimated at $2 trillion. This value is more than double the rate of most expensive companies on the world stock market. For comparison: at the moment the market value of Apple is $1,15 trillion, Microsoft — $1.1 trillion, Alphabet — $902 billion, Amazon $886 billion Such data results in the NASDAQ.

Meanwhile, experts believe that the recent assessment of Saudi Aramco could fall below $2 trillion. As noted in an interview with RT chief analyst CAPT Anton Bykov, the value of the company could be affected by the rising tension in the middle East and the decline in world oil prices. So, for the last year, a barrel of raw Brent fell from nearly $80 to $60. Moreover, a negative factor for Saudi Aramco was also the recent attack on the business of the Corporation.

In mid-September, the drones attacked oil refineries (refinery), Saudi Aramco. As a result, the company has suspended the production of about 5.7 million barrels per day. Thus, oil production in the Kingdom dropped twice.

However, by the beginning of October the company has managed to restore oil production. As noted by Ahmad Yasin, resume, Saudi Aramco in such a short time could only strengthen the interest of investors, future IPO.

«It is worth noting how quickly and effectively the company has managed to restore the level of oil production. This development only increased the desire of investors to increase their investments in the Saudi market. Investors have more confidence that companies like Aramco, able to withstand the serious geopolitical challenges and their consequences in the middle East,» said Ahmad Yasin.

The issue price

RT interviewed experts differently assess the possible impact of the IPO on the Saudi Aramco global oil market. So, according to Alexey Kalachev, the company is on the exchange may not lead to serious changes in commodity prices. Meanwhile, the expert considers that by results of IPO, investors will be able to understand how undervalued the energy state-owned companies of other countries.

«The resulting market valuation of the company’s capitalization, controlled by Royal house of Saudi Arabia, may affect the evaluation of other public corporations oil and gas sector. For example, the IPO can be used in models of the fair valuation of such state-owned companies, as «Rosneft» or «Gazprom» — the expert believes.

As explained in an interview with RT expert of the company «international financial center» Gaydar Hasanov, for Saudi Arabia it is important to ensure the stability of prices and demand for its own oil prior to the IPO. For this Riyadh strengthens partnership with China.

«Now Riyadh tries to strengthen its relations with China as the largest importer of oil. Recently, the parties agreed to increase oil sales from Saudi Arabia to China to 151 thousand barrels per day in 2020. This step primarily creates security for the energy sector of Saudi Arabia and lays the Foundation for the success of the IPO of Saudi Aramco,» — said Hasanov.

According to Dmitry Aleksandrova, today, the oil market players are also closely watching the development of trade relations between the US and China. According to the expert, the conclusion of tariff war with Washington, Beijing together with the successful IPO of Saudi Aramco can trigger a rise in world oil prices until the end of 2019.

«In case of successful IPO of Saudi Aramco and the agreement between Washington and Beijing, the price of oil before the end of the year will be in the range of $60-64 per barrel», — concluded the analyst.

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