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Bold Prince Holds Tight Grip On Cash Machine Saudi Aramco, The World’s Most Profitable Company

On track for $80 billion in income this year, Saudi Aramco held onto its No. 5 spot in the Global 2000. Shares trade “in their own universe,” as investors show faith in the vision of Crown Prince Mohammed bin Salman


Crown Prince Mohammed bin Salman al Saud raised eyebrows when, in an April interview on Rotana Khalejia TV, he said that 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 upwards of $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 happens, it would add to the pile that MbS (as the crown prince is known) and the Saudi government has collected by selling slivers of the Saudi crown jewel. In December 2019, Aramco raised $29 billion in the IPO 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 coming soon. 

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

These things tend to chill investor appetite, and MbS dialed back the IPO. But investors have put aside their scruples. According to analyst Oswald Clint at Bernstein Research, Aramco is “trading in its own universe” at 21 times expected 2021 earnings of roughly $80 billion. That compares with a 13 p/e for the western majors like ExxonMobil and Chevron, 6 for the Chinese majors, and 6 for Russia’s Rosneft. Aramco also pays out $75 billion in annual dividends, for a 4% yield (lower than its peers). With the market paying that kind of premium valuation for such geopolitically risky assets, MbS would be silly not to sell a few percent more.

So what’s MbS raising this money for? He remains dedicated to his Vision 2030, with the new buzzword being “Shareek,” meaning “partner” — the name of an MbS plan to spur $1.3 trillion of public/private investment into diversifying the Kingdom into something that can survive the end of the oil age. 

Aramco has been doing its part, and last year handed over another $69 billion (most of it borrowed) to the Saudi Public Investment Fund in return for a 70% stake in chemicals giant Saudi Basic Industries, or Sabic. CEO Amin Nasser said in a recent report that Aramco is expected to leverage its engineering and project management skills to propose all manner of economic diversification projects — and apply for subsidies to get some of that money back. 

Existing MbS megaprojects include techno-resort-city on the Red Sea; planting 10 billion trees; sourcing half the Kingdom’s power from renewables within a decade. In his Rotana interview MbS said the Kingdom would power through a “V-shaped” recovery and that unemployment among Saudis would drop to 11% this year (from 15% a year ago) then down to 7% in 2030. 

To be sure, Prince bin Salman is not seeking to squeeze Aramco of growth capital, just to harvest some of what’s already been grown. Aramco this  year expects to rack up $35 billion in capital investments. It’s starting up a new 400,000 bbl per day refinery in Jazan, developing a zero-carbon ammonia business, and is ahead of schedule on building a $10 billion plastics plant with ExxonMobil near Corpus Christi, 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 reportedly include a promise to purchase of 500,000 barrels per day for the Reliance Jamnagar refining complex in Gujarat, handling 1.24 million barrels per day, the biggest in the world. 

And given Saudi Arabia’s place in the world there are unforeseen expenses, like the $tk billion Aramco spent last year repairing damage caused by missile attacks purportedly launched by the Iran-backed Houthis. Meanwhile v.c. arm Saudi Aramco Energy Ventures has been investing millions in cyber security startups like AttackIQ, Dragos and Xage to help fend off cyber attacks like the “Shamoon” malware that destroyed 30,000 office computers in 2012. 

Prince Mohammed, in his recent interview, made it clear he is on guard against enemies both foreign and domestic: “Being an extremist in anything, whether in religion or our culture or our Arabhood, is a serious matter based on our prophet’s teachings,” he said. “Any person that adopts an extremist approach, even if he was not a terrorist, is a criminal and will face the full force of the law.” Aramco shareholders can rest assured an iron fist protects their investment.

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