I literally laughed when I heard that Goldman Sachs put a valuation range of $1.6 to $2.3 trillion on the Saudi Aramco IPO. One, a valuation range of $700 million only means the Goldie analyst bankers (deal promoters?) are clueless about what Saudi Aramco is really worth. Two, I cannot fathom how the financial markets will assign a valuation of 17 to 23 times earnings to a Saudi oil and gas producer whose sovereign owner has a 95% stake, total management control and whose chairman is the former head of the Saudi sovereign wealth fund PIF. Three, Saudi Aramco has to pay royalties to the Saudi government that can be as high as 80% of earnings if Brent rises to $100 a barrel. This means private investors can only expect yield, not real earnings growth, making this IPO a de facto preferred stock and thus Goldman’s valuation multiple range idiotic.
You do not exactly have to be Albert Einstein, Warren Buffett and George Soros to concluded that investors will not buy a state owned oil supermajor at 17 – 23 times earnings when BP, say, is trading at 10 times earnings, a 6.8% dividend yield, has amazing earnings growth due to its asset sale/restructuring program and no state ownership, though I concede it began life as His Majesty’s UK Treasury owned Anglo Persian Oil Company a hundred years ago. This only proves that Wall Street investment bankers are bringing their inflated, rigged, self-serving, churn and burn games to the Gulf. There are solid reasons why Goldman was banned in Abu Dhabi and has to pay $7 billion to Malaysia after its Southeast Asia partner/bankster was indicted in New York for fraud and money laundering in the looting of the 1MDB sovereign wealth fund. Sad. Sad but true. This is an insult to the intelligence of every investor in the Gulf. Get real, Goldman. I was born at night, only not last night!
Bank of America Merrill Lynch has set a much more credible range of $1.2 to $1.3 trillion, not very different from my own $1 – $1.1 trillion or recommendation to buy the deal at a 7.4% dividend yield. I believe some investment banks use loony tunes inflated valuations to win mandates, not protect the interest of investors. After all, the Saudi government wanted a $2 trillion IPO even if it is obvious that the world’s fund managers would never buy the IPO at $2 trillion or at a 3.7% dividend yield.