[rockdoc123]

http://www.bloomberg.com/news/articles/ ... its-rivals

An article which speaks to how deputy crown prince Mhmd bin Salman plans to divest 5% of Aramco and use the proceeds to create a megafund that would invest in industries other than petroleum related. Some mention that this would be make Saudi Arabia no longer an oil economy but rather an investment economy.

Quite interesting. Given the oil revenues SA would receive under $55/bbl oil you would need a 7% return on investment in that $2 trillion megafund to completely offset oil revenues. That is probably reaching too far but given the current price a 4% -5% ROI is quite possible. Mind you if they make some bad investments all bets are off.

[ROCKMAN]

Doc - Great points. But let's remember the KSA doesn't have a $2 TRILLION kitty today nor are they likely to have one anytime soon given they are currently borrowing funds in addition to drawing down their current rainy day savings: it has started poring down since they "forced" the price of oil down. But yeah: IF oil were $100/bbl and IF they didn't spend most of their income on maintaining production as well as keeping their natives from getting restless and IF they could amass the $2 TRILLION quick enough and IF they didn't have to give up too much revenue to the new minority "owners" of ARAMCO then they might have a viable plan.

Likewise IF the Rockman could put $2 million in his savings account he could kick back and retire. IF, IF, IF. LOL. Or as someone said long ago: buying a lottery ticket every week is NOT a retirement plan.

[BrianR]

I would be very hesitant to purchase shares in Saudi Aramco, for the primary reason that the asset is in Saudi Arabia, and the Mid East is, what I would call a "tinderbox" just waiting for the appropriate trigger.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'D')oc - Great points. But let's remember the KSA doesn't have a $2 TRILLION kitty today nor are they likely to have one anytime soon

[Plantagenet]

Alaska's got a bit over 50 billion in our sovereign wealth fund. Now that oil revenues have dropped through the floor, the state is looking at using the earned revenue from the Alaska Permanent Fund to help fund state government here. This would include cutting in half the ca. $2000 dividend that is currently paid to state residents.

[kublikhan]

$this->bbcode_second_pass_quote('rockdoc123', 'I') believe they are referring to proceeds from the sale of 5% of Aramco for source of funds. I have no idea (nor doubt anyone does) what the total value of Aramco is.
Hard to believe it is $40 trillion though. I have seen a number of $10 trillion which would mean a sale of 5% would bring in 500 billion or 1/4 of the 2 trillion he is referencing. Would be interesting to see where he gets the numbers from for sure. They have started to take on international debt now so that might be a source....hey if the US can take on 19 trillion in debt with a 3 trillion annual revenue the Saudis have lots of room to layer on debt.

Certainly times they are a changing in SA

[ROCKMAN]

k - So if I follow the KSA will build most of the $2 TRILLION fund by giving up the $2 TRILLION in assets it currently owns. So my wife can double the amount she has in her savings account if I transfer all my savings to her. So she gets richer, I get poorer and the family assets don't change. LOL.

[kublikhan]

That was the take of the analyst in the article, mostly number shuffling. Although diversifying their asset base by selling oil shares and buying other assets seems like a good idea to me. Saudi Arabia's economy needs to start making moves like this to prepare for the days when they are exporting less oil. Although I am not sure if oil prices will have recovered by next year. I think it would have been wiser to start selling shares when oil was riding high.

[ROCKMAN]

k - But they aren't selling 95% of their asset, are they? But if the did sell 100% of ARAMCO they would be giving up about $1 TRILLION in revenue over just the next 19 years. And that's only if oil stays at $30/bbl indefinitely.

AFAIK the KSA needs every $ of current revenue plus some to keep the company functioning. And no one is going to pay the future revenue of ARAMCO to the KSA because there would be no profit so the govt wouldn't get the full value.

And back to the point someone else made: when the fund can't provide for the lifestyle the citizens have come to demand what stops the kingdom from pulling a Venezuelan bait and switch?

The more I think about the govt's annoujncermdnt seems more directed at local consumption then the rest of the world. IOW those making these promises will belong dead when the truth is revealed. In the meantime TPTB can just coast along.

[kublikhan]

No, I don't think they currently have plans to sell more than 5%. But let's not forget that not all of KSAs spending is for the lifestyle of it's citizens. This tiny country has the third biggest military budget in the world, after only the US and China. This is a country with the population the size of Texas but with a military budget bigger than Russia. Reducing military spending would free up some cash for investment into this fund. And since the Saudis seem anxious to extract themselves from the war in Yemen, a reduction in military spending seems likely.

I see the move as increasing the size of it's sovereign wealth fund. Here we have such a hugely wealth oil company & nation and yet the size of their rainy day fund is smaller than the UAE's or Norway's. Time to stop spending every cent on today and invest a bit more for the future. Time will tell, but I'm hoping KSAs leaders will have a bit more foresight than Venezuela. It's rather sad to see a country swirling the drain like that.

[vtsnowedin]

It comes down to what their real remaining reserves are which are most likely a lot less then the eighty year supply they show on the books now.
If they are getting near the end or at least to the point where they can't maintain or increase current production levels then some wise investments spread over the globe are in order. If I were them I'd be buying large chunks of well watered farmland in the most stable countries I could find. Then a cross section of the world's industry and technology.

[ROCKMAN]

k - All true. Just as the fact if the kingdom had started that effort a decade or two ago they would have a few $trillion in the kitty today. Just the same as the US not increasing motor fuel taxes meaningfully a few decades ago the dynamics today would be much different.

But back to the same problem: if they redirected 15% of the annual revenue (a huge chunk of their budget) it would take about 20 years to build that fund. Remember: they may produce about 9.5 mm bopd but the don't sell that much. And as their population continues the boom they'll continue consuming an increasing percentage which means even less future income.

And cut the military in a country that sits in the middle of the most unstable region on the planet? A country with a long history of producing some of the most dedicated terrorists many of whom despise the rulers of the kingdom. A country sitting just a few hundred miles from a very longstanding religeous enemy.

I don't think I'll hold my breath waiting for them to cut military spending. Remember the shah in Iran had the most powerful military in the region and that didn't save his ass. LOL.

[vtsnowedin]

One of the side stories on this gave figures for money the Saudis had cashed out to pay current budget bills so that money was already invested elsewhere already. Does that mean that expenses exceeded the interest income and they had to touch the principal?
http://www.cnbc.com/2016/04/01/the-30-y ... world.html

[dolanbaker]

$this->bbcode_second_pass_quote('GASMON', '&')quot;My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will drive a delivery van in London"

Gas

[kublikhan]

$this->bbcode_second_pass_quote('ROCKMAN', 'I') don't think I'll hold my breath waiting for them to cut military spending. Remember the shah in Iran had the most powerful military in the region and that didn't save his ass. LOL.

[Peak_Yeast]

I wonder what kind of purchasing value 2 trillion $ will have in a post-fossil fuel world . . .

[dolanbaker]

$this->bbcode_second_pass_quote('Peak_Yeast', 'I') wonder what kind of purchasing value 2 trillion $ will have in a post-fossil fuel world . . .

[Cog]

There is money to be made on this IPO. Who cares if it goes bust years down the road? I'll stick my little toe in.