Saudi Aramco could be valued at $2 trillion, making the Saudi Aramco IPO worth a massive $100 billion. That will make it the biggest IPO ever once the company goes public.
The balance between QE and Treasury supply will begin to shift in July. The underlying bid it has provided for stocks and Treasuries will begin to fade.
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But the media is overlooking one key aspect of the Aramco IPO and is instead only focusing on the deal’s size.
Even though Saudi Arabia is only selling a 5% stake in the company, it will still potentially raise $100 billion. That’s more than four times the size of the current record set by Alibaba Group Holding Ltd. (NYSE: BABA) and its $25 billion 2014 IPO.
But Money Morning Global Energy Strategist Dr. Kent Moors says the valuation isn’t the only thing that “makes the Aramco IPO uniquely important in the history of stock markets.”
Moors – a 30-year veteran of advising countries and companies across the globe on energy policy – would certainly know.
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Today, we’re going to explain why Moors says investors need to look past the deal’s size. We’ll show you why the Aramco IPO is important for every investor, and include information on how to get Moors’ profit strategy for the IPO.
The Saudi Aramco IPO Valuation Is Only Part of the Equation
Moors says the real story behind the Saudi Aramco IPO valuation is the money it will bring to the Saudi government – and what they’ll do with it…
“When the dust clears from this one, a new sovereign wealth fund will be set up with as much as $2 trillion in purchasing power,” said Moors. “Instantly, this will be the largest ever established.”
This massive sovereign wealth fund will be a profit opportunity for investors who know where to look. The Saudi government isn’t planning to leave the money in a bank; they are going to spend it.
“This makes virtually any publicly traded company anywhere in the world suddenly a potential target for Saudi investment money,” according to Moors.
What Moors calls the Saudi government’s “novel idea” will be “one of the most interesting diversification programs ever attempted.” And investors who have access to an energy insider like Moors will know where to look to reap the profits once the Aramco IPO date hits.
But there’s still a major hurdle the Saudi government needs to clear, and it’s holding up the Aramco IPO for now…
The Single Biggest Obstacle Stopping the Aramco IPO
The next biggest obstacle ahead of the Aramco IPO are the disclosure rules for western stock exchanges…
“There has been an ongoing disagreement within both the government and the leadership at Aramco over where the IPO should be issued,” Moors said.
One reason for the debate is the Saudi government’s reluctance to agree to the transparency rules required to list on the London Stock Exchange (LSE) or New York Stock Exchange (NYSE).
The public transparency and financial disclosures required by the world’s leading stock exchanges mean Saudi state secrets could be exposed to the public. For example, Moors says the Saudi government keeps the official number of its oil wells and size of its oil reserves secret for strategic reasons.
If Aramco lists on the NYSE, that could become public information due to U.S. securities law.
The entanglement between the Saudi government and Aramco goes even deeper, too.
The Saudi government is used to collecting nearly all the revenue created by Aramco, but a tax rate above 90% is not attractive to investors. Saudi Arabia just slashed that tax rate to 50% last month, but that’s still more than double what other country’s tax corporations. The OECD average corporate tax rate is 24.1%.
But the LSE has offered Aramco a way out of its problematic connections to the Saudi government. The LSE may create a new listing structure that would allow Aramco to sell shares on the London exchange but wouldn’t force it to adhere to transparency laws.
This potential solution has attracted some parts of the Saudi royal family, according to The Wall Street Journal, even as the LSE is taking criticism for giving Aramco special treatment. Moors agrees.
“Of course, more than a few Saudi officials (at Aramco and elsewhere) have used both the United Kingdom and the LSE as conduits for their own financial dealings,” said Moors.
But the desire to own a stake in Saudi Arabia’s lucrative oil fields will keep investors on the edge of their seats, and the massive sovereign wealth fund it will create for the Saudi government could be lucrative to investors who know where to look, too. For all updates and profit opportunities for the Saudi Aramco IPO, sign up for Moors’ exclusive email alerts, right here…
Bottom Line: The Saudi Aramco IPO will break records, but questions surrounding the company’s relationship with the Saudi government are complicating the process. Instead of buying the IPO, investors should focus on what the government plans to do with the proceeds.
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