Saudi Arabia’s Economic Lifeline: Aramco’s $31 Billion Dividend
As the Saudi government faces mounting financial pressure, its majority-owned oil giant, Aramco, has committed to maintaining its staggering $31 billion dividend payout. This decision comes despite rising debt and concerns over oil demand.
A Delicate Balancing Act
Aramco’s dividend is crucial for the government’s finances, which are struggling to balance spending amidst low crude prices. The company’s payout is equivalent to about 10% of Saudi Arabia’s GDP, making it a vital component of the kingdom’s economic transformation plans.
Debt and Deficits
However, Aramco’s generosity comes at a cost. The company has slipped into a net debt position for the first time in two years, with a deficit of $8.9 billion in the third quarter. This marks a significant shift from its net cash position of $27.4 billion just a year ago.
Oil Prices and Output
Aramco’s net income fell 15% to $27.6 billion in the quarter ended September, largely due to lower oil prices. The company sold crude at an average of $79.30 a barrel, a significant drop from last year’s prices. Meanwhile, its output remains capped at around 9 million barrels a day as part of OPEC+’s efforts to stabilize the market.
Funding Challenges
The Saudi government’s ambitious projects, including the futuristic Neom venture, are facing funding challenges. Aramco’s own chemical plants are being scaled back due to financial constraints. The company’s shares have fallen 17% this year, underperforming global oil majors.
Bond Issuances and Secondary Share Sales
To raise capital, Aramco issued $6 billion in bonds in July and another $3 billion in dollar-denominated Islamic bonds in September. The Saudi government and its Public Investment Fund have also issued around $50 billion in bonds this year, making them one of the largest issuers of international debt in emerging markets. Additionally, Aramco raised over $12 billion in a secondary share sale earlier this year.
Uncertain Future
The sustainability of Aramco’s dividend payout will be put to the test early next year, when a special component of the payout is set to decrease. As the company navigates the complexities of oil demand and government finances, its ability to maintain its massive dividend will be closely watched.
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