Market experts said the oil giant Aramco (ARAMCO), whose dividends remain vital to help Saudi Arabia contain a huge deficit, may have to sell assets or borrow more to play its financial role amid the uncertainty surrounding oil prices.
While Saudi Arabia has increased its non-oil revenues this year, Aramco has continued to contribute more than half of the total income, and will have a pivotal role in containing the current year’s budget deficit, which is expected to reach 298 billion riyals ($ 79.4 billion), equivalent to 12% of GDP.
Aramco, the world’s largest oil producer, listed its shares in 2019 in an unprecedented $ 29.4 billion operation, but the government still owns 98.2% of the group.
Although its profits have tumbled this year with the decline in oil prices during the Covid-19 pandemic, the company has not waived its pledge to annual distributions amounting to $ 75 billion, the vast majority of which will go to the government.
Although it is not obligated to continue with such massive payments, economists expect the company to continue providing support Himself For state coffers next year.
“They can reduce dividends to the government, but they are more likely to keep or increase $ 75 billion and may borrow if necessary,” said James Reeve, chief economist at Samba Financial Group.
Dmitry Marinchenko, director at Fitch, said that with oil prices at $ 50 a barrel or higher, Aramco would be able to finance payments of $ 75 billion and capital spending from working cash flows.
He continued, “But if oil prices decline, the level of dividends committed to it becomes unsustainable, and Aramco will have to borrow again or sell assets to finance it.”
Youssef Hosseini, an equity analyst at EFG Hermes, thinks it makes sense for Aramco to sell some assets and then rent them to improve liquidity.
Two sources said that Aramco is working on such a strategy in cooperation with Moelis & Co.
The company is already considering selling a more than $ 10 billion stake in pipeline assets to global investors, and it may sell more assets to raise liquidity, according to sources familiar with the matter.
Aramco also issued an international bond for the second time this year, raising $ 8 billion.
Tight credit markets
Alberto Begulin, director of fixed income for the Middle East and North Africa at StoneX Group, said, “If oil prices hover around $ 50 a barrel, Aramco will likely need to hit the market again even if it manages to sell some of its assets. But I think it will be.” They can do it very easily in light of the tight credit markets. “
In its 2021 budget published this week, the government has not disclosed the expected share of oil revenues next year.
Finance Minister Mohammed Al-Jadaan said that discussing the expectations would be a very sensitive matter after Aramco became a listed company.
Based on its estimates of a price of $ 48 a barrel for Brent crude, Al Rajhi Capital said it expects government oil revenues to turn between 400 and 500 billion riyals ($ 106.6-133.3 billion) next year, based on Aramco’s dividends.