For those who enjoy the schadenfreude of watching the oil industry cope with the transition to renewable energy, you’re going to have to read this piece from Simon Watkins on OilPrice.com:
The initial public offering (IPO) of Saudi Aramco that was heralded by Crown Prince Mohammed bin Salman (MbS) as being a showcase flotation for raising massive new capital for the Kingdom and anchoring a major expansion of its international equities market presence has proven only to put Aramco into a debt spiral and highlighted a myriad of problems in Saudi Arabia to international investors. Now, Aramco is digging itself further into serious debt through bond issuances simply to pay for the huge dividend payments promised by MbS that were absolutely required to persuade anyone to buy into the omni-toxic IPO.OilPrice.com
That’s right. To justify Aramco’s record setting $2 trillion valuation, the company promised investors a $75 billion annual dividend. There’s just one problem… you saw what happened to oil prices this year, right? That whole futures going negative thing? Yeah… well now Aramco is issuing debt just to be able to pay out the dividend.
At this rate, the debt taken on by Aramco and other Saudi bond offerings to pay for the dividends will be far more than the amount of money raised in the IPO.As a direct result of MbS deciding to go ahead with yet another oil price war at the same time as the COVID-19 pandemic was gathering pace and destroying demand for oil, Aramco’s finances have suffered a massive hit. For the first half of this year, the company saw a 50 percent plunge in net profit and at the beginning of this month, it reported another massive drop in profits of 44.6 percent for the third quarter, falling to SAR44.21 billion (US$11.79 billion) from SAR79.84 billion in the same period last year. On the other side of the balance sheet, though, is the stark fact that because the company’s IPO was so toxic on so many levels that it was shunned by Western investors and had to be off-loaded to buyers who were either bullied or bribed into buying the stock Aramco is left having to pay massive guaranteed dividend payments for the foreseeable future to those shareholders.OilPrice.com
Ooof, half the profit gone just like that.
This huge guaranteed dividend payment of US$18.75 billion per quarter – US$75 billion for a full year – will have to be paid for through budget cuts over and above the US$15 billion in Aramco’s annual capital spending alluded to by Aramco’s chief executive officer, Amin Nasser, just after the first half profits figures were unveiled. This will take the total down from around US$40 billion to around US$25 billion. Further reports have stated that even this US$25 billion figure is set to be reduced by another US$5 billion, taking the total capital spending in this year from US$25 billion to US$20 billion.OilPrice.com