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Saudi Aramco borrows again to fund dividend pledges despite oil recovery

Saudi Aramco’s return to the global bond market this week is a major oil giant, despite high energy prices, as it issued dollar-denominated Islamic bonds to meet dividend pledges and complete costly acquisitions. Has shown that they need to raise cash.

Officially known as the world’s largest listed oil company, Saudi Aramco raised $ 6 billion in Islamic bonds or sukuk on Wednesday, according to people familiar with the matter. In November, when oil prices were sluggish due to a coronavirus pandemic, we finally sold $ 8 billion in common debt.

A Saudi Aramco spokeswoman said the company is raising funds for general corporate purposes.

Oil prices have rebounded in recent months, relieving pressure on Aramco, analysts said, but they will still need to borrow to fulfill their promises.

Aramco has pledged to pay an annual dividend of $ 75 billion to attract investors to its initial public offering in 2019. It also agreed to pay $ 69 billion in a majority stake in Saudi Arabia’s state-owned petrochemical company in a transaction encouraged by the Saudi Arabian government. It owns 98% of Aramco and relies on dividends for much of its funding.

Due to its ownership arrangement, Aramco cut dividends to keep cash due to a sharp drop in oil demand and prices last year by other major oil companies such as Royal Dutch Shell PLC and BP PLC. We adhered to our commitment to make quarterly payments. Pandemic.

Last year’s fall in prices had a major impact on Aramco’s profits, forcing it to cut jobs, consider selling assets, and consider plans to expand at home and abroad, the Wall Street Journal reported. In 2020, profits fell 44% and the company’s dividend payments were below the $ 49 billion net cash flow.

Brent crude oil traded above $ 72 a barrel on Friday, and oil prices recovered significantly from last year’s depths. Sustained rebounds can help ease borrowing pressure on Aramco by improving the balance sheet.

Free cash flow in the first quarter of 2021 was $ 18.3 billion, slightly below the $ 18.75 billion dividend for the period. Soaring oil prices exceeded analysts’ expectations, with net profit up 30% and net profit up from $ 16.7 billion in the previous year to $ 21.7 billion.

Nevertheless, Aramco’s debt levels increased significantly, primarily due to the acquisition of chemical manufacturer Saudi Basic Industry Corporation. Gearing (a measure of debt as a percentage of shares) increased from 0.2% at the end of 2019 to minus 5% at the beginning of 2020. By March of this year, it was 23%, which is above the company’s voluntary limit of 15%.

Aramco’s free cash flow will start at $ 66 billion across 2021, depending on oil prices and “reasonable expectations” of production, said Magen Arsdairi, head of research at Riyadh-based Arradi Capital. It is expected to be $ 70 billion. To do so, the company must borrow between $ 5 billion and $ 9 billion to meet its dividend obligations.

Mr Sudairi said the government could adjust the dividend ratio in the future according to budgetary needs and Aramco’s financial capacity.

Aramco sold a small sliver on the local Saudi Arabian exchange in December 2019 after repeatedly delaying the evaluation and final abandoned international listing venue. Earlier that year, it raised $ 12 billion through the sale of its debuting international bonds.

Analysts say Aramco’s investors are usually concerned about companies raising debt to support dividends, as investors remain the world’s largest oil producers with the lowest cost of extracting oil among their peers. He said it would be acceptable for issuance.

Sukuk is often configured to comply with Islam’s ban on interest payments by incorporating assets or cash flows into the underlying transaction. As a result, issuers have access to a wider range of investors than traditional bonds.

Write to Summer Said (summer.said@wsj.com) and Stephen Kalin (stephen.kalin@wsj.com)

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Saudi Aramco borrows again to fund dividend pledges despite oil recovery

Source link Saudi Aramco borrows again to fund dividend pledges despite oil recovery

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