Bold Prince firmly holds Saudi Aramco cash dispenser, the world’s most profitable company

On track for $ 80 billion in revenue this year, Saudi Aramco retained its fifth place in the 2000 world rankings. Stocks trade ‘in their own universe’, with investors showing confidence in the crown prince’s vision Mohammed ben salman

Crown Prince Mohammed bin Salman al Saud raised eyebrows when, in an April interview on Rotana Khalejia TV, he said the Kingdom was in talks to sell an additional 1% stake in oil giant Saudi Aramco. The buyer was a “leading global energy company,” he said, which would pay more than $ 18 billion for the stake. The most likely suspects are Sinopec or Petrochina, the oil champions of China, which buys 3 million barrels of Saudi oil a day.

If and when this sale occurs, it would add to the pile that MbS (as the crown prince is known) and the Saudi government have collected by selling shards of the Saudi crown jewel. In December 2019, Aramco raised $ 29 billion in the initial public offering of 1.75% of the company. In recent weeks, a consortium led by EIG Global Energy Partners bought 49% of Aramco Oil Pipelines for $ 12.4 billion. There is talk of a similar sale of gas pipelines to come.

The prince, now 35, initially launched a plan to sell 5% of Aramco and raise $ 100 billion with an implied market cap of $ 2 trillion. No one doubted he would do so after rounding up hundreds of Saudi tycoons and holding them captive in the Riyadh Ritz-Carlton until, like billionaire Alwaleed bin Talal, they paid a ransom. Then came the revelations of the 2018 murder in Istanbul of dissident Jamal Kashoggi, dismembered at the Saudi consulate by MbS thugs with a bone saw.

These things tend to dampen investor appetites and MbS has pushed back the IPO. But investors have put aside their qualms. According to analyst Oswald Clint of Bernstein Research, Aramco “trades in its own universe” at 21 times the expected profit in 2021 of about $ 80 billion. This compares to a 13 p / e for Western majors like ExxonMobil and Chevron, 6 for Chinese majors and 6 for Russian Rosneft. Aramco also pays $ 75 billion in annual dividends, for a 4% return (lower than its peers). With the market paying this kind of premium valuation for these geopolitically risky assets, MbS would be ludicrous not to sell a few percent more.

So why is MbS collecting this money? He remains dedicated to his Vision 2030, the new buzzword being “Shareek” which means “partner” – the name of an MbS plan to stimulate $ 1.3 trillion in public / private investment to diversify the market. Kingdom into something that can survive the end of the war. the age of oil.

Aramco has done its part and last year turned over an additional $ 69 billion (mostly borrowed) to the Saudi Public Investment Fund in exchange for a 70% stake in chemicals giant Saudi Basic Industries, or Sabic. . CEO Amin Nasser said in a recent report that Aramco should use his engineering and project management skills to come up with all kinds of economic diversification projects – and apply for grants to get some of that money back.

MbS’s existing megaprojects include the techno-resort on the Red Sea; plant 10 billion trees; supply half of the Kingdom’s electricity from renewable energies in a decade. In his interview with Rotana, MbS said the Kingdom would go through a ‘V’ recovery and that Saudi unemployment would drop to 11% this year (from 15% a year ago) and then to 7% in 2030.

To be sure, Prince bin Salman is not looking to squeeze Aramco with growth capital, just to reap some of what has already been cultivated. Aramco expects to accumulate $ 35 billion in capital investment this year. It starts up a new 400,000 bpd refinery in Jazan, develops a carbon-free ammonia business, and is ahead of schedule to build a $ 10 billion plastic plant with ExxonMobil near Corpus Christi, in. Texas.

Wild cards abound. Aramco is said to be in talks to pay $ 15 billion for 20% of the petrochemical subsidiary of billionaire Mukesh Ambani’s Reliance Industries. The deal would include a promise to purchase 500,000 barrels per day for the Reliance Jamnagar refinery in Gujarat, processing 1.24 million barrels per day, the world’s largest.

And given Saudi Arabia‘s place in the world, there are unforeseen expenses, like the billion dollars Aramco spent last year to repair damage caused by missile attacks allegedly launched by the Houthis. supported by Iran. Meanwhile, the vc arm Saudi Aramco Energy Ventures has invested millions in cybersecurity startups like AttackIQ, Dragos and Xage to help fend off cyber attacks like the ‘Shamoon’ malware that destroyed 30,000 desktops in 2012.

Prince Mohammed, in his recent interview, made it clear that he was wary of both foreign and domestic enemies: “To be extremist in anything, whether in religion, our culture or our Arabity, is a serious question based on the teachings of our prophet ”. he said. “Anyone who takes an extremist approach, even if they were not a terrorist, is a criminal and will face the full force of the law.” Aramco shareholders can rest assured that an iron fist is protecting their investment.

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