Partial Privatization of Saudi Aramco Accounting, Finance Case Study
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This assignment is fairly unstructured. We are witnessing the privatization (or, perhaps, the attempted privatization) of what could be the largest company in the world – or, at least, the most profitable. The firm manages the world’s largest single oil production network, including both the world’s largest onshore and the world’s largest offshore network. Yet, there is huge uncertainty about the overall firm valuation, with estimates ranging from USD 1.2 trillion (Bloomberg) and USD 3 trillion (Saudi officials, at least in the past). Geopolitics are adding to the difficulty in valuing the company. Recent drone attacks attributed to Houthi rebels (or to Iran, depending on sources) have seriously disrupted operations. Fear of legal liabilities related to the 2001 terrorist attacks are complicating the process, as a US listing would subject assets to the threat of expropriation. While a brutal war in Yemen, the murder of Jamal Khashoggi, the imprisonment of members of the Saudi royal family, and a crackdown on female protesters asking for the right to drive has led to the political isolation of the current ruling regime—with the notable exception, of course, of a warm embrace by both current (and past) American administrations.
I would like you to put yourselves in the shoes of a group that was hired to consult with the Saudi Arabian government in regards to the planned privatization of Saudi Aramco.
Question: Should the firm be privatized in the first place? If so, how much of it should be sold and over which timeframe?
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Partial Privatization of Saudi Aramco
Saudi Aramco has been the subject of discussion in Saudi Arabia for several years, with the government aiming at privatizing it. The process has been hindered by various obstacles such as a huge uncertainty about the overall firm valuation, geopolitics, recent drone attacks attributed to Houthi rebels, and fear of legal liabilities related to the 2001 terrorist attacks. The company should be sold up to 5%. The partial privatization should be valued at $2tn.
Aramco is the country’s oil producer, and this would enable the other countries to access Saudi’s oil sector, which is one of the most prized industries. Consequently, this would benefit Saudi Arabia as it could create an opportunity for greater internationalization of the country’s economy. With vision 2030 on sight, Aramco’s IPO is considered part of the countries transformation plan, as envisaged by the deputy crown prince, Salman, with the aim of achieving broad-based privatization as a way of boosting employment opportunities and also diversifying the country away from over relying on oil.
One of the major hit backs to the progress is skepticism on whether or not Saudi Arabia can achieve this overhaul considering that its population has become used to acquiring cradle-to-grave services from the state. This means that privatization of such entities as Saudi Aramco and untangling it from the state will prove an uphill task; besides exploitation of the hydrocarbon riches in the country, Saudi Aramco, which employs more than 65,000 wo...
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