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Case Details

Case Code: FINC136
Case Length: 16 Pages 
Period: 2016-2017   
Pub Date: 2018
Teaching Note: Available
Price:Rs.400
Organization : Saudi Aramco
Industry : Oil and Gas
Countries : Global
Themes: -
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SAUDI ARAMCO

This case won the Second Prize in the 2018 oikos Case Writing Competition (Sustainable Finance track), organized by oikos International, Switzerland.
 

ABSTRACT

 
In early 2016, the largest state-owned Oil Company in the world, Saudi Arabia-based Saudi Aramco (Aramco), declared a proposal to float an IPO. The crown prince of Saudi Arabia, Prince Salman, had stunned the world when he declared in early 2016 that Aramco’s worth would be around $2 trillion. Aramco was not only an oil company but a budget to run the nation as 85% of Saudi Arabia’s budget came from the tax which Aramco had to pay. The intent to monetize the state jewel came at a time when the economy of the Kingdom was under pressure. A widening fiscal deficit and depleting foreign reserves indicated that it was no longer viable to depend on oil exports to run the nation. There was a need to diversify and the impetus to do so would come from the proceeds of the IPO. But the IPO which would decide the fate of 33 million Saudis would come with its own set of challenges. The success of Aramco’s IPO would be a function of numerous factors – some in the Kingdom’s control and some beyond. In 2017, concerns about climate change were on the rise. Climate policies threatened to put a 40% discount on Prince Salman’s $2 trillion aspirations. The commitment of global leaders to keep a check on global warming would escalate proliferation of renewables across the world and further build a pessimistic outlook for the future of oil prices. It remained to be seen how an IPO would shape the nation and how an oil giant would shape the future of world climate.
 
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Issues

The case is structured to achieve the following teaching objectives:
  • Examine the valuation of Aramco, and understand the investor risk parameters
  • Analyse the implications of Aramco’s IPO on climate change
  • Evaluate economic and political scenario in Saudi Arabia
Contents
INTRODUCTION
ARAMCO: A BRIEF HISTORY
SAUDI’S ECONOMY: PERILS OF A WELFARE STATE
DYNAMICS OF OIL PRICING: PRESENT AND THE FUTURE
ARAMCO’S OPERATIONS
ARAMCO’S VALUATION: NOT AN EASY MATH
THE POLITICAL SCENARIO
IPO VERSUS THE CLIMATE CHANGE
LOOKING FORWARD
EXHIBITS

Keywords

Saudi Aramco,IPO,Monetize,Oil prices,OPEC,Climate control,Valuation,Green Paradox,Sustainable finance,Environmental, social and governance factors,Resource Curse,Quantifying impact of climate risk,IPO valuation

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