Here’re Some Financial Secrets Revealed As Saudi Aramco Raises Money Through $10 Billion Bond Sale

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Apr 02 2019
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Very little was known about Saudi Aramco, the world’s biggest oil producer. Now, as the organization that produces about 10% of the world’s crude raises cash from the international financial market through bond sales, its financial secrets have slowly emerged. As part of a global roadshow, Aramco is now forced to reveal secrets closely guarded since the company’s nationalization in the late 1970s.


As it turned out, Aramco’s revenue for the financial year 2018 was at aneye-popping US$224 billion (£170.9 billion; RM913.7 billion). Its net profit alone was a whopping US$111.1 billion, easily outstripping American giants such as Apple Inc. and Exxon Mobile Corp. In fact, Aramco’s net income is more than Apple, Google and Exxon combined.


That speaks volumes how massive the Saudi Arabia’s crown jewel is. Surprisingly, despite its mind-boggling profit, Aramco doesn’t generate as much cash per barrel of oil as other oil companies like Royal Dutch Shell Plc, thanks to heavy tax burden. As a result, both Fitch Ratings and Moody’s Investors Service rated Aramco the fifth-highest investment grade, the same as Saudi sovereign debt.

Saudi Arabia Aramco - Profits Against Apple, Google, Exxon

In essence the ratings of “A+” from Fitch and “A-” from Moody’s, which were lower than oil companies such as Exxon, Shell and Chevron, means the kingdom’s sluggish economy will put pressure on Aramco’s cost of borrowing. Those ratings assigned are the fifth-highest investment grade (the highest being “AAA”). On its own, Fitch said Aramco would deserve “AA+”, second highest.


Previously reluctant to disclose its financial data, the information was unveiled as Saudi triggers its Plan-B to raise debt to pay for the acquisition of 70% stake worth about US$69.1 billion in domestic petrochemical group Sabic (Saudi Basic Industries Corp), the world’s fourth-largest petrochemicals maker, after a much-hype of an IPO of Aramco – the Plan-A – was postponed last year.


While Aramco is revealed as the richest company on planet Earth, its reliance on global oil prices are spectacular. In 2016, when the price of Brent crude plunged to average US$45 a barrel and OPEC cut production, the company actually struggled to break even. Net profit for the full year was just US$13 billion and free cash flow was merely US$2 billion. Zero dividend was given that year.

Saudi Arabia Aramco - Financial Statement - 2016-2018

That’s because Aramco has been the ultimate cash cow which Saudi Arabia milks every year. It pays a staggering 50% of its profit to Saudi in the form of income tax. The kingdom’s dependence on the company to finance social and military spending, as well as the lavish lifestyles of thousands of princes, places a heavy burden on Aramco’s cash flow.


So, despite earning US$111.1 billion last year, Aramco’s capital spending was only US$35,1 billion after it paid US$58.2 billion in dividends to the Saudi government. “Saudi Aramco has an extremely strong liquidity position. The company’s balance sheet leverage has been conservatively managed,” – Moody’s said, with US$48.8 billion in cash against US$27 billion in reported debt.


Yet, despite all the sexy published numbers of Aramco, of which Saudi Energy Minister Khalid al-Falih said he hoped to raise US$10 billion from the bond sale, the company’s dividend yield is about half of what Shell pays. Now that the cat is out of the bag, such information might jeopardise Saudi Crown Prince Mohammed bin Salman ambition to secure a US$2 trillion valuation on Aramco’s IPO.

Saudi Arabia Aramco - Bond Sales - Financial Secrets

Interestingly, a similar bond sale to raise up to US$40 billion to help buy the same Sabic (Saudi Basic Industries Corp) was abandoned last November. Back then, Aramco executives had revealed that the company was looking at options that require less public disclosure. The company was also concerned about the market conditions – the oil prices.


As with other prospectus associated with such bond sales, the 470-page document related to Aramco reveals some interesting risks for prospective investors – including missiles strike on Aramco’s installations. Others included the impact of proposed U.S. antitrust laws on OPEC, the fight against climate change, and even the risk that Saudi will break the peg between its currency, the Riyal, and the U.S. dollar.


It was also revealed that Aramco was once the victim of a “successful” cyber attack in 2012, forcing the company to move some operations into “manual” mode. The company will hold meetings with investors in coming days in cities including London, New York, Boston, Singapore, Hong Kong, Tokyo, Los Angeles and Chicago.

Saudi Crown Prince Mohammed bin Salman - Smiling 2 

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