Aramco IPO - will it cross $ 25 billion?

Share price on offer between 30 and 32 Riyals values Aramco between $ 1.6 trillion to $ 1.7 trillion.  With 1.5% of shares on offer IPO is expected to be around $ 24.3 billion to $ 25.9 billion.  If it hits beyond $ 25 billion then Aramco will be the world's largest IPO till date (Currently Alibaba holds the records at $ 25 billion).  Let us wait till December 4th to see if this happens.

Aramco wants to make it really really big eyeing at a valuation of $ 1.73 trillion with the next highest market valuer being Apple at $ 1.14 trillion.  This is real big though initially Aramco valuation target was around $ 2 trillion.  However international investors are valuing Aramco at around $ 1.5 trillion.  

Why Aramco's IPO gets so much prominence?  It is because this IPO tries to change course of Saudi Arabia's economy which primarily depends on oil currently.  Saudi Government plans to use the proceeds of this IPO to invest in non-oil related industries, like tourism, technology, entertainment sector etc to create jobs in Saudi Arabia and diversify away from oil.

Challenges to this IPO are drop in oil prices, global warming and its related impact due to fossil fuel are some of the major ones.  These challenges have veered away Western investors who show little interest in this IPO, forcing Saudi Arabia to concentrate on local investors and its major customer bases like China, Malaysia and Japan.  

Let us look at oil prices for the past 2 years, definitely it is not in favour of Aramco and there is still no upward outlook on oil atleast in near future.  

As per reports in the first 5 days of offering the IPO had garnered around $ 19.5 billion.  Question is whether it will cross $ 25 billion?  My view it will cross $ 25 billion and will become the largest IPO in the world, considering the importance attached to it for the Saudi Government and secondly given the intense interest of the local Saudi people in the IPO.  Lastly there is also a "Green Shoe" option which will be exercised by Aramco underwriters (this was also instrumental in Alibaba getting to its $ 25 billion) should there be a shortfall in the IPO.

Complication : Rule 36(4) GST Rules, ,2017

Complication has crept into GST procedures with implementation of Rule 36(4) with effect from 9.10.2019.  Clarifications issued vide circular number 123/42/2019 dated 11.11.2019 does not answer all questions and still there are many to be answered.  To name a few

1. A manufacturer avails credit based on the 20% rule on an vendor invoice of Rs.100 @ Rs.20.  The vendor never uploads the invoice.  Is interest payable when reversal of this Rs.20 had to be done when ITC availment period expires?  The Government has as per law allowed 20% credit so does it allow to reverse it without interest?
2. Manufacturer / service provider will be affected when purchasing from a vendor filing quarterly return.  No clarification on this point
3. Does this 20% rule work across financial years?

Let us now move into a major complication.  Explanation 4 & 5 of the circular dated 11.11.2019 explains how ITC should be availed under Rule 36(4).  A plain reading gives a result as  below for a manufacturer

In this illustration there  are 10 suppliers.  Column Booked refers to purchase invoices booked in manufacturer books, column GST-2A reflects suppliers filing of GSTR-1.  

Month1 - manufacturer books bills worth of GST Rs.10,500 and GST-2A reflects Rs.5,500 so his ITC for the month will be Rs.6,600 - leaving an un-availed ITC gap of Rs.3,900 (Rs.10,500 - 6,600)

Month 2 - manufacturer books bills worth of GST Rs.13,000 and GST-2A reflects Rs.9,500 so his ITC for the month will be  Rs.11,400 - leaving an un-availed ITC gap of Rs.5,500 (Rs.10,500 + Rs.13,000 - Rs.6,600 - Rs.11,400)

Month 3 - manufacturer books bills worth of GST Rs.18,000 and GST-2A reflects Rs.12,000 so his ITC for the month will be  Rs.14,400 - leaving an un-availed ITC gap of Rs.9,100 (Rs.10,500 + Rs.13,000 + Rs.18,000 - Rs.6,600 - Rs.11,400 - Rs.14,400)

Month 4 - manufacturer books bills worth of GST Rs.17,500 and GST-2A reflects Rs.32,000 (all vendors have filled all their invoice in GSTR-1) so his ITC for the month will be  Rs.17,500 as credit is restricted to bill booked (explanation in the circular "The additional amount of ITC availed shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC"). - leaving an un-availed ITC gap of Rs.9,100 (Rs.10,500 + Rs.13,000 + Rs.18,000 + Rs.17,500 - Rs.6,600 - Rs.11,400 - Rs.14,000 - Rs.17,500).

In short total bill booked in 4 months Rs.59,000 but credit availed only Rs.49,000 leaving a gap of Rs.9,100 un-availed credit.   This is because of complexity of working when we do a month on month reconciliation.  

To avoid this a manufacturer or service provider should revert to a cumulative working of bills booked and ITC availed.  See table below for a cumulative working

Cumulative working in Month 4 show ITC eligibility as Rs.59,000 and ITC availed on a cumulative value as Rs.59,000 (monthly credit is shown in the last row).  

Conclusion

Rule 36(4) is quite a complicated working scheme and assesses need to be careful in working considering volume of transactions handled.  Best option is do not opt for this 20% higher credit if cashflow is not a problem and avail credit off only the credit available as per GSTR-2A, this will make life simpler and calculations more easy to follow.

Data 16.07.19

Statistics as on 16.7.2019
Description	Currency	Values
USD vs INR		68.67
Euro vs INR		77.01
Euro vs USD		1.121
Gold / 10 gram	INR	34,795
Sensex		39,131
Crude Oil WTI (NYMEX)	USD	57.59
Brent Crude	USD	64.35
Iran Heavy Oil	USD	59.85
Chennai Petrol price  / litre	INR	76.09

Data 12.07.2019

Statistics as on 12.7.2019
Description	Currency	Values
USD vs INR		68.56
Euro vs INR		77.36
Euro vs USD		1.128
Gold / 10 gram	INR	34,937
Sensex		38,736
Crude Oil WTI (NYMEX)	USD	60.21
Brent Crude	USD	66.72
Iran Heavy Oil	USD	59.99
Chennai Petrol price  / litre	INR	75.71

Data 11.7.2019

Statistics as on 11.7.2019
Description	Currency	Values
USD vs INR		68.55
Euro vs INR		77.10
Euro vs USD		1.125
Gold / 10 gram	INR	34,718
Sensex		38,823
Crude Oil WTI (NYMEX)	USD	60.41
Brent Crude	USD	66.76
Iran Heavy Oil	USD	60.24
Chennai Petrol price  / litre	INR	75.70

Jet Airways readies move into History

The National Company Appellate Tribunal (NCLT) today admitted lenders and creditors plea against Jet Airways.  IRP has been given 3 months time to find a resolution.  This is a highly improbable task unless otherwise a strategic investor comes forward which looks quite unlikely.  The bid of Etihad Airways is only for a minority stake that too with too many conditions. 

Liquidation seems to be the only solution with all lenders and creditors taking a huge hit.  A sad ending for once fledging airline.

Data 20.06.2019

Statistics as on 20.6.2019
Description	Currency	Values
USD vs INR		69.38
Euro vs INR		78.56
Euro vs USD		1.130
Gold / 10 gram	INR	33,728
Sensex		39,601
Crude Oil WTI (NYMEX)	USD	56.15
Brent Crude	USD	63.59
Iran Heavy Oil	USD	55.01
Chennai Petrol price  / litre	INR	72.64

Industry 4.0

https://www.facebook.com/ETEdge/photos/a.726623237403493/2376904469042020/?type=3&theater

Data 18.06.2019

Statistics as on 18.6.2019
Description	Currency	Values
USD vs INR		69.59
Euro vs INR		77.92
Euro vs USD		1.120
Gold / 10 gram	INR	33,016
Sensex		39,046
Crude Oil WTI (NYMEX)	USD	54.05
Brent Crude	USD	62.14
Iran Heavy Oil	USD	54.90
Chennai Petrol price  / litre	INR	72.64

Digital Transformation (DX)

A business is driven mainly by (among other things)

• Products
• Technology (R&D, Manufacturing, Services)
• Marketing capabilities
• Customer acceptance
• Price points
• Competition offers

To this we should add digital transformation (DX) as this is one of the catalyst for change in an organisation

I am a firm believer “DX should follow business” and not the other way round.  It should be a well-trained “dog” (may be called “smart dog”) who ensures that his master derives happiness in seeing him do things which the master would like and at the same time do not overshoot maintenance costs.

DX is definitely an enabler for growth.  DX will be expensive, calls for a paradigm shift and it involves major decisive decisions to be taken by senior management.  Once it is achieved it can bring in higher customer satisfaction, higher revenue, bigger savings in costs, improve processes, decrease times spent and more importantly brings down risk of fraud and thereby having a better internal control.

What needs to be done (Do’s) for a good DX

• Right, digital-savvy leaders
• Build capabilities for the workforce of the future
• Empower people to work in new ways (change management)
• Ensure IT processes are robust without any major issues that can cause disruptions or expensive replacements
• Ensure IT security is in place
• DX process should be reliable and sustainable.  This needs to be ensured
• Clear communication on changes across the organisation

What should be avoided (Dont’s) for a good DX

• Commencing without having a clear idea about benefits - Unclear benefits
• Excessive investments – too much than needed is burning of cash
• Unclear / lack of understanding of relevant legal issues
• Avoid areas where privacy breach possibilities are high

 

Data 27.05.2019

Statistics as on 27.5.2019
Description	Currency	Values
USD vs INR		69.58
Euro vs INR		77.86
Euro vs USD		1.119
Gold / 10 gram	INR	31,635
Sensex		39,683
Crude Oil WTI (NYMEX)	USD	59.05
Brent Crude	USD	68.60
Iran Heavy Oil	USD	60.57
Chennai Petrol price  / litre	INR	74.50