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Commercial Awareness Update - April 2019!
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<blockquote data-quote="Bugsy Malone" data-source="post: 10783" data-attributes="member: 201"><p><strong>2. <u>The upcoming Aramco bond deal (by @Moni)</u></strong></p><p></p><p><strong>The Story: </strong></p><p></p><p>On March 29th the Saudi Arabian State Oil Company (Aramco) filed a <a href="https://www.rns-pdf.londonstockexchange.com/rns/6727U_1-2019-4-1.pdf" target="_blank">Base Prospectus</a> with the SEC as part of its upcoming bond issuance. This is Aramco’s first entry into global capital markets and the prospectus which was filed as a regulatory requirement under SEC rules, gave investors their first look into the financials of the world’s most profitable company, which previously was well known for keeping its operations and sheer size very secret.</p><p></p><p>Rumours about Aramco’s size last circulated in 2017 as the company began to prepare for a potential 2018 IPO. The offering was expected to be the largest IPO of all time and the company was valued at close to $2 trillion. However, the Kingdom chose to <a href="https://www.bloomberg.com/news/articles/2018-07-07/saudi-aramco-s-2-trillion-zombie-ipo" target="_blank">delay</a> the offering and taken a more gradual approach by entering the debt capital markets first. Aramco’s prospectus confirmed investors previous expectations and led to extremely high investor demand. In 2018, Aramco earned $111 billion in net income, surpassing Apple ($59.5 billion) and summarily outperforming peer oil companies like Royal Dutch Shell and Exxon Mobil. This headline profit is enormous, yet not surprising given Aramco is the world’s largest oil producer, delivering 10million barrels per day, which is 10% of global supply.</p><p></p><p>While Aramco does not necessarily need the cash, the proceeds of the Bond will help fund the $69 billion acquisition of a majority stake in SABIC, Saudi Arabia’s premier petrochemical producer, which would allow Aramco to diversify its revenue sources and strengthen potential growth. Investors are enthusiastic about the offering and the offering received over $60 billion in initial orders. The offering is particularly appealing as Investors are eager to provide funding to companies who do not necessarily need an additional cash injection and as a result are unlikely to default.</p><p> </p><p><strong>Impact on businesses and law firms:</strong></p><p></p><p>While the sheer size of Aramco’s balance sheet and headline net income are enough to make its upcoming bond offering and future IPO a crucial one for both the energy sector and financial markets in general, the transaction will also be interesting to watch because of the company’s close ties to the Saudi Government.</p><p></p><p>In addition to being a smart business decision for a company looking to IPO in a few years, Aramco’s SABIC acquisition also aligns with the Kingdom’s Vision 2030 plan which aims to diversify the Kingdom’s economy away from oil production and is representative of the key role it plays in Saudi Arabia’s economic development. Aramco has always enjoyed close ties to the government, who is currently the company’s sole shareholder. In fact, given Saudi Arabia’s historical dependence on oil, many believe that for many years Aramco provided most of the government’s revenue. Aramco’s close ties to the government are especially important given Saudi Arabia is an absolute monarchy, where the monarch has full authority over the laws governing Aramco’s structure. The sovereign’s ability to significantly alter Aramco’s profile was demonstrated in 2017, the government stepped in and lowered Aramco’s income tax rate from 85% to 50% and reimbursed the company for previous costs it had incurred on behalf of the government. Aramco also points to the fact that the Kingdom determines how much oil the company produces, “based on sovereign energy security goals or any other reason”. In this case, the government’s actions served to benefit Aramco, however this may not always be the case. This is especially concerning given the lack of clarity around the process through which Aramco would make a claim against a government.</p><p></p><p>Investors in Aramco’s bond offerings and future interactions with the capital markets may look to price in Aramco’s relationship with the government and the risk of negative government interaction. This pricing is to some extent already reflected in the fact Aramco has received the same credit rating as the Sovereign, despite its strong financial profile, and its bonds are offering similar yields. However, in addition to pricing in these risks, it will be interesting to see if investors will seek any further legal protections either as part of this transaction or future offerings, and what legal tools will be available to provide such protection.</p><p></p><p><strong><u>3. The UK launches an investigation into video game subscription plans (by [USER=201]@bugsy malone[/USER]):</u></strong></p><p></p><p><strong>The story:</strong></p><p></p><p>Last week the UK’s Competition and Markets Authority (CMA) decided to launch a consumer law investigation into video game companies Miscrosoft, Sony, and Nintendo. The CMA are concerned over the legality of the companies’ practices concerning their use of auto-renewals for subscription services like Xbox Live. They are also concerned about the barriers consumers face to cancel these plans and the terms and conditions attached.</p><p></p><p>The CMA has written to the companies requesting information on their online gaming contracts. They intend to investigate whether the biggest online gaming companies are being fair with their customers when they automatically renew contracts, and whether people can easily cancel or get a refund.</p><p></p><p><strong>The impact on businesses and law firms:</strong></p><p></p><p>The gaming sector has see exponential growth over the past few years. In 2018, the global video games industry reached a value of $135bn, up over 10% from 2017. Alongside this growth, roll-over contracts like subscription plans have become more and more common place. This has attracted the CMA’s attention.</p><p></p><p>The UK’s investigation was followed by the launch of similar EU investigations. The CMA have stated that if they find the companies are not treating people fairly under consumer protection law they are prepared to take immediate action. This could have serious repercussions, not only for the online gaming companies in question, but potentially other companies operating similar roll-over subscription plans, as they may have to restructure their business models if the CMA is not satisfied.</p><p></p><p>It will be interesting to see how this story progresses over the next few months and if the CMA decide consumer protection laws have been broken, the knock on effects of this.</p></blockquote><p></p>
[QUOTE="Bugsy Malone, post: 10783, member: 201"] [B]2. [U]The upcoming Aramco bond deal (by @Moni)[/U][/B] [B]The Story: [/B] On March 29th the Saudi Arabian State Oil Company (Aramco) filed a [URL='https://www.rns-pdf.londonstockexchange.com/rns/6727U_1-2019-4-1.pdf']Base Prospectus[/URL] with the SEC as part of its upcoming bond issuance. This is Aramco’s first entry into global capital markets and the prospectus which was filed as a regulatory requirement under SEC rules, gave investors their first look into the financials of the world’s most profitable company, which previously was well known for keeping its operations and sheer size very secret. Rumours about Aramco’s size last circulated in 2017 as the company began to prepare for a potential 2018 IPO. The offering was expected to be the largest IPO of all time and the company was valued at close to $2 trillion. However, the Kingdom chose to [URL='https://www.bloomberg.com/news/articles/2018-07-07/saudi-aramco-s-2-trillion-zombie-ipo']delay[/URL] the offering and taken a more gradual approach by entering the debt capital markets first. Aramco’s prospectus confirmed investors previous expectations and led to extremely high investor demand. In 2018, Aramco earned $111 billion in net income, surpassing Apple ($59.5 billion) and summarily outperforming peer oil companies like Royal Dutch Shell and Exxon Mobil. This headline profit is enormous, yet not surprising given Aramco is the world’s largest oil producer, delivering 10million barrels per day, which is 10% of global supply. While Aramco does not necessarily need the cash, the proceeds of the Bond will help fund the $69 billion acquisition of a majority stake in SABIC, Saudi Arabia’s premier petrochemical producer, which would allow Aramco to diversify its revenue sources and strengthen potential growth. Investors are enthusiastic about the offering and the offering received over $60 billion in initial orders. The offering is particularly appealing as Investors are eager to provide funding to companies who do not necessarily need an additional cash injection and as a result are unlikely to default. [B]Impact on businesses and law firms:[/B] While the sheer size of Aramco’s balance sheet and headline net income are enough to make its upcoming bond offering and future IPO a crucial one for both the energy sector and financial markets in general, the transaction will also be interesting to watch because of the company’s close ties to the Saudi Government. In addition to being a smart business decision for a company looking to IPO in a few years, Aramco’s SABIC acquisition also aligns with the Kingdom’s Vision 2030 plan which aims to diversify the Kingdom’s economy away from oil production and is representative of the key role it plays in Saudi Arabia’s economic development. Aramco has always enjoyed close ties to the government, who is currently the company’s sole shareholder. In fact, given Saudi Arabia’s historical dependence on oil, many believe that for many years Aramco provided most of the government’s revenue. Aramco’s close ties to the government are especially important given Saudi Arabia is an absolute monarchy, where the monarch has full authority over the laws governing Aramco’s structure. The sovereign’s ability to significantly alter Aramco’s profile was demonstrated in 2017, the government stepped in and lowered Aramco’s income tax rate from 85% to 50% and reimbursed the company for previous costs it had incurred on behalf of the government. Aramco also points to the fact that the Kingdom determines how much oil the company produces, “based on sovereign energy security goals or any other reason”. In this case, the government’s actions served to benefit Aramco, however this may not always be the case. This is especially concerning given the lack of clarity around the process through which Aramco would make a claim against a government. Investors in Aramco’s bond offerings and future interactions with the capital markets may look to price in Aramco’s relationship with the government and the risk of negative government interaction. This pricing is to some extent already reflected in the fact Aramco has received the same credit rating as the Sovereign, despite its strong financial profile, and its bonds are offering similar yields. However, in addition to pricing in these risks, it will be interesting to see if investors will seek any further legal protections either as part of this transaction or future offerings, and what legal tools will be available to provide such protection. [B][U]3. The UK launches an investigation into video game subscription plans (by [USER=201]@bugsy malone[/USER]):[/U][/B] [B]The story:[/B] Last week the UK’s Competition and Markets Authority (CMA) decided to launch a consumer law investigation into video game companies Miscrosoft, Sony, and Nintendo. The CMA are concerned over the legality of the companies’ practices concerning their use of auto-renewals for subscription services like Xbox Live. They are also concerned about the barriers consumers face to cancel these plans and the terms and conditions attached. The CMA has written to the companies requesting information on their online gaming contracts. They intend to investigate whether the biggest online gaming companies are being fair with their customers when they automatically renew contracts, and whether people can easily cancel or get a refund. [B]The impact on businesses and law firms:[/B] The gaming sector has see exponential growth over the past few years. In 2018, the global video games industry reached a value of $135bn, up over 10% from 2017. Alongside this growth, roll-over contracts like subscription plans have become more and more common place. This has attracted the CMA’s attention. The UK’s investigation was followed by the launch of similar EU investigations. The CMA have stated that if they find the companies are not treating people fairly under consumer protection law they are prepared to take immediate action. This could have serious repercussions, not only for the online gaming companies in question, but potentially other companies operating similar roll-over subscription plans, as they may have to restructure their business models if the CMA is not satisfied. It will be interesting to see how this story progresses over the next few months and if the CMA decide consumer protection laws have been broken, the knock on effects of this. [/QUOTE]
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