DUBAI (Reuters) – Oil big Aramco, whose dividend stays important to serving to Saudi Arabia include an enormous deficit, might must promote belongings and borrow extra to fulfil its fiscal position amid uncertainty in oil costs, market specialists stated.
Whereas Saudi Arabia has elevated non-oil revenues this yr, Aramco nonetheless accounted for greater than half its complete revenue, and will probably be key to containing a finances shortfall this yr forecast at 298 billion riyals ($79.4 billion), or 12% of GDP.
Aramco, the world’s largest oil producer, listed in 2019 in a file $29.4 billion share sale, however the authorities nonetheless owns 98.2% of the group.
Although its income plummeted this yr as oil costs tumbled through the COVID-19 pandemic, the corporate is sticking to a promised $75 billion annual dividend that can go virtually totally to the federal government.
Whereas it’s not obliged to keep up such a excessive payout, economists anticipate the agency to proceed to supply the identical assist to state coffers subsequent yr.
“They will modify the dividend to authorities decrease, however they’re extra prone to keep or improve the $75 billion and borrow if wants be,” stated James Reeve, chief economist at banking agency Samba Monetary Group.
Aramco declined to remark.
With oil costs at $50 per barrel or above, Aramco ought to be capable of fund the $75 billion dividend and capex from working money flows, stated Dmitry Marinchenko, senior director at Fitch.
“Nonetheless if oil costs are decrease the dedicated dividend stage turns into unsustainable, and Aramco would wish to draw further exterior debt or promote belongings to fund it.”
For Yousef Husseini, fairness analyst at EFG Hermes, it will make sense for Aramco to do some sale and leaseback-type agreements to enhance liquidity.
Aramco is working with Moelis & Co on such a method, two sources stated. Moelis additionally declined to remark.
The corporate is already weighing up a greater than $10 billion sale of a stake in its pipeline belongings to international buyers, and will promote extra belongings to boost money, in accordance with sources acquainted with the matter.
Aramco additionally issued worldwide bonds for the second time this yr, elevating $8 billion.
“If oil costs vary round $50 per barrel, Aramco will in all probability have to faucet the market once more even when they handle to promote a few of their belongings,” stated Alberto Bigolin, head of MENA fastened revenue at StoneX Group.
“However I believe it will likely be in a position to take action fairly nimbly given how tight the credit score markets are.”
In its 2021 finances, printed this week, the federal government has not disclosed the projected share of oil income for subsequent yr. Finance Minister Mohammed al-Jadaan stated as Aramco has turn into a public firm, discussing projections could be very delicate.
Basing its estimates on a Brent worth of $48 per barrel, Al Rajhi Capital stated it expects authorities oil revenues to vary from 400 to 500 billion riyals ($106.6 billion-$133.3 billion) subsequent yr, relying on Aramco’s dividends.
($1 = 3.7513 riyals)
Reporting by Saeed Azhar, Hadeel Al Sayegh, Saba Yousef and Davide Barbuscia; Modifying by Jan Harvey