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March 22, 2018 | Aramco Liquidity Alluding the Saudis in 2018?

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

An initial public offering of 5% of oil giant Saudi Aramco, is how the Saudi government had hoped to ‘get liquid’ by some $2 trillion this year.  After meeting with salivating bankers in New York for months, the Wall Street Journal reported yesterday that the plan is now in flux for no small part because of concern that 9/11 lawsuits against the Saudis could attach to the funds.  This is dark, here’s WSJ:

Crown Prince Mohammed bin Salman has become increasingly wary of exposing the company to 9/11 related lawsuits following a New York listing, Saudi officials say.

Evidently they’re now scouting out other IPO options in less attractive markets like Hong Kong maybe for 2019.  Trouble is they are running down their cash reserves faster than they had anticipated, oil prices are still in the low 60’s, and US shale supplies keep gushing to fill demand in the US and increasingly China.  See Economic crisis continues to haunt Saudi Arabia:

Riyadh is banking its future on raising funds from the Aramco sale. Its $2 trillion estimated of the value of the oil company is said to be over optimistic especially during uncertainty over oil price. Bin Salman’s vision requires oil price to recover in order to increase the valuation of the initial public offering of state oil company Saudi Aramco. But higher prices, industry experts point out, can bring shale supplies back even stronger.

It’s a dilemma which the Saudi’s may be unable to resolve especially since they have cut production and gone down the pecking order in key markets like China. Beijing is now the second largest destination for US crude oil exports; a trend that is set to increase. The US is likely to cover most of the world’s demand growth over the next three years while the forecast for OPEC is said to fall below current production rates in 2019 and 2020.

All this proving yet again, that it’s not about how much you make in the boom times, it’s about how much cash savings you keep and what your burn rate from expenses looks like.  Liquidity is everything.  Lesson for life.

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March 22nd, 2018

Posted In: Juggling Dynamite

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