Fund Managers Value Aramco Below $1.5 Trillion

International fund managers and institutional investors largely expect Saudi Aramco to be valued at up to USD$1.5 trillion in the IPO expected next year, according to a survey by investment bank EFG Hermes, with most experts disagreeing with Saudi officials who have said that Saudi Arabia’s oil giant is worth around US$2 trillion.

Among the respondents in a survey by EFG Hermes carried out at an investment conference in Dubai, 39 percent expect the market to evaluate Aramco in the range of between US$1 trillion and US$1.5 trillion, Reuters reported on Monday. A total of 36 percent of respondents expect the valuation to be below US$1 trillion, while another 24 percent of fund managers see Saudi Aramco valued at more than US$1.5 trillion.

Since the Saudis announced plans to sell 5 percent in their oil giant last year -- saying the company could be worth the staggering US$2 trillion -- speculation has been raging as to whether this estimate could really be achieved. If indeed the value were close to US$2 trillion, Saudi Arabia would fetch US$100 billion by selling 5 percent of its crown jewel.

However, most of the attempts at estimates by institutional investors, fund managers and industry professionals are largely based on assumptions and speculation regarding how much oil reserves Saudi Arabia really has, which Aramco businesses would be included in the listed entity, how much income taxes and revenue royalties the company would pay to Saudi Arabia, and where oil prices would go a year from now.

Some of the recent attempts at valuing Aramco have placed the company’s total worth at somewhere between US$400 billion and US$1 trillion, according to various assumptions about the tax rate, the cost of capital, ability to generate cash flow, oil price projections, and potential political sensitivity for future investors.

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