Saudi Arabia May Face Budget Squeeze After 2021, Moody’s Says
Saudi Arabia May Face Budget Squeeze After 2021, Moody’s Says
(Bloomberg) -- Saudi Arabia may not be able to rely on annual dividends of almost $75 billion from state oil company Saudi Aramco beyond next year unless crude prices increase, according to Moody’s Investors Service.
The government, which owns 98% of Aramco, has depended on the dividend to help plug its budget deficit.
“The government is unlikely to be able to repeat the maneuver beyond 2021,” Moody’s said in a report. This is the case “particularly when taking into account Saudi Aramco’s own capital expenditure needs and its commitment” to buying Saudi Basic Industries Corp.
Aramco agreed earlier this year to buy 70% of the chemicals maker from the government’s Public Investment Fund for $69 billion.
Aramco pledged during its 2019 initial public offering to pay out $75 billion to shareholders during its first five years as a publicly traded company. It has since reaffirmed that commitment. Yet, crude prices have fallen amid the coronavirus pandemic and are 35% lower this year. Aramco, meanwhile is pumping less oil under a deal among global producers to reduce supply.
To honor its dividend pledge, the world’s biggest oil company has said it would decrease spending. It has also laid off hundreds of workers and announced plans to sell non-core assets.
Despite these steps, the company’s gearing ratio has risen, from -5% at the end of March -- meaning Aramco had more cash than debt -- to 20% in June, above its targeted range of 5% to 15%. That’s largely due to the debt it took on to acquire Sabic.
Saudi Arabia last week published an overview of its spending for the next three years that envisages annual cuts to help contain its fiscal deficit. The plans were based on oil prices of around $50 a barrel, according to a Goldman Sachs Group Inc. analysis. Benchmark Brent crude was trading Thursday at around $43 a barrel.
©2020 Bloomberg L.P.