Aramco may have to sell assets, borrow more to maintain Saudi dividend
[DUBAI] Oil giant Aramco, whose dividend remains vital to helping Saudi Arabia contain a huge deficit, may have to sell assets and borrow more to fulfil its fiscal role amid uncertainty in oil prices, market specialists said.
While Saudi Arabia has increased non-oil revenues this year, Aramco still accounted for more than half its total income, and will be key to containing a budget shortfall this year forecast at US$79.4 billion, or 12 per cent of GDP.
Aramco, the world's largest oil producer, listed in 2019 in a record US$29.4 billion share sale, but the government still owns 98.2 per cent of the group.
Though its profits plummeted this year as oil prices tumbled during the Covid-19 pandemic, the company is sticking to a promised US$75 billion annual dividend that will go almost entirely to the government.
While it is not obliged to maintain such a high payout, economists expect the firm to continue to offer the same support to state coffers next year.
"They can adjust the dividend to government lower, but they are more likely to maintain or increase the US$75 billion and borrow if needs be," said James Reeve, chief economist at banking firm Samba Financial Group.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Aramco declined to comment.
With oil prices at US$50 per barrel or above, Aramco should be able to fund the US$75 billion dividend and capex from operating cash flows, said Dmitry Marinchenko, senior director at Fitch.
"However if oil prices are lower the committed dividend level becomes unsustainable, and Aramco would need to attract additional external debt or sell assets to fund it." For Yousef Husseini, equity analyst at EFG Hermes, it would make sense for Aramco to do some sale and leaseback-type agreements to improve liquidity.
Aramco is working with Moelis & Co on such a strategy, two sources said. Moelis also declined to comment.
The company is already weighing up a more than US$10 billion sale of a stake in its pipeline assets to global investors, and could sell more assets to raise cash, according to sources familiar with the matter.
Aramco also issued international bonds for the second time this year, raising US$8 billion.
"If oil prices range around US$50 per barrel, Aramco will probably need to tap the market again even if they manage to sell some of their assets," said Alberto Bigolin, head of MENA fixed income at StoneX Group.
"But I think it will be able to do so quite nimbly given how tight the credit markets are." In its 2021 budget, published this week, the government has not disclosed the projected share of oil revenue for next year.
Finance Minister Mohammed al-Jadaan said as Aramco has become a public company, discussing projections would be very sensitive.
Basing its estimates on a Brent price of US$48 per barrel, Al Rajhi Capital said it expects government oil revenues to range from US$106.6 billion-US$133.3 billion next year, depending on Aramco's dividends.
REUTERS
KEYWORDS IN THIS ARTICLE
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Energy & Commodities
Seatrium unit to fully redeem S$500 million worth of floating-rate bonds early
Anglo rejects BHP takeover bid as significantly undervalued
India rice prices at three-month low on shrinking demand
Gold prices set for weekly decline ahead of US inflation data
Pricey coffee is here to stay as hoarding, heat hit Vietnam supply
Oil settles higher as weak US economic growth offset by supply concerns