No one, that is, except for the Saudi deputy crown prince Muhammad bin Salman. Saudi Arabia’s state-owned oil company Saudi Aramco is gearing up for an initial public offering next year, selling off 5 percent of the firm. But expectations for how much money that is going to raise vary widely, stemming from disagreements over just how much Saudi Aramco is worth. Bin Salman pegs that valuation at $2 trillion—which, if true, would make the company the most valuable on the planet—while other officials and analysts estimate the company to be worth anywhere between $500 billion and $1.5 trillion.
Part of the trouble with this valuation stems from the fact that so few people understand the inner workings of the company, and little of that information is made public. As a result, there’s a huge amount of uncertainty going into next year’s IPO. To top that off, the price of crude has a tremendous effect on the company’s revenue, which makes oil market volatility yet another unknown in this equation. Finally, as the WSJ reports, a decision by Riyadh earlier this year to lower Saudi Aramco’s tax rate may have tripled the company’s value:
The Saudi government last month said it is reducing Aramco’s tax rate to 50% from 85%, bringing its tax rate closer to the level of the world’s biggest oil companies such as Exxon Mobil and Royal Dutch Shell.
That move would result in higher dividends for potential shareholders, and it brought Aramco’s internal value estimates to $1.3 trillion to $1.5 trillion from about half a trillion dollars, say people involved in the process.
$1.5 trillion is a lot of money, but even after accounting for those tax cuts and oil price uncertainty, it’s hard to see how bin Salman got his nice, round $2 trillion figure.
We noted last week that China was putting together a consortium bid to become a cornerstone investor in Saudi Aramco, a move which marked the latest example of Beijing casting a wide net across the planet to secure new supplies of oil imports. There is clearly appetite for investment in Saudi Aramco, but just how much these shares are going to cost—and how much their sale will raise for Riyadh—still remains very much in doubt. We’ll be watching.