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Saudi Aramco sets stage for IPO

August 14/2019

MOSCOW (MRC) -- Saudi Aramco unveiled a USD15 billion deal to expand its global refining footprint and held its first-ever earnings call with financial analysts, twin moves that could bolster investor confidence as the state-owned oil giant revs up plans to list shares, said WSJ.

Aramco's net income for H1 2019 was USD46.9 billion. This is actually a 12% decrease from its net income for the first half of 2018, but was expected because the price of the Brent oil benchmark has averaged $66 per barrel this year as opposed to USD69 per barrel last year. The company continues to diversify by growing its downstream sector as well as become more integrated.

Yet, the big questions concerning the strength of the company as a possible investment for outsiders remains undressed. Specifically, potential investors need to understand Aramco's relationship with the Saudi government. This was only addressed at one point during the call when an analyst asked about Aramco's dividend. According to figures provided by Aramco, the company paid USD26.4 billion to its shareholder in "Ordinary Dividends" in H1 2019. This was almost identical to the amount paid in H1 2018. However, Aramco paid another USD20 billion to Saudi Arabia in "Special Dividends." This reflects an increase of USD14 billion over last year's H1 dividend.

In answering the question, Aramco's CFO, Khalid al-Dabbagh, explained that Aramco's executives and board of directors policy regarding the Ordinary Dividend is based on three criteria: sustainability, affordability and a benchmark. According to al-Dabbagh, such a high dividend in 2019 was possible despite lower profits because Aramco made more than anticipated in 2018. However, he did not address the fact that this incomparably high dividend is given because it is needed to satisfy a significant part of Saudi Arabia's budget. Saudi Arabia, as a country, could not survive without this dividend and its royal family could not prosper.

Even more important are the implications of this dividend should Aramco go public. For example, will this type of dividend be available to the holders of publicly traded shares or will the Saudi government be the only recipient of "Special Dividends" or even the "Ordinary Dividends" from Aramco? If Aramco makes its lucrative dividend available to shareholders other than the Saudi government, then Aramco shares could prove highly valuable. On the other hand, if Aramco continues to fund the Saudi government through a dividend that is unavailable to other shareholders, then the public could very well find Aramco shares a highly unattractive prospect.


mrcplast.com
Author:Anna Larionova
Tags:petroleum products, petrochemistry, Crude oil, Saudi Aramco.
Category:General News
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