KEY POINTS
- Saudi Aramco raised $3 billion through Islamic bonds to support dividend payments.
- The company faces higher dividend commitments amid a lower oil revenue outlook.
- Aramco plays a central role in Saudi Arabia’s Vision 2030 economic reform plan.
Saudi Aramco, the world’s largest oil company by market value has sold its second debt sale this year and raised $3 billion. It launched two sets of Islamic bonds, or sukuk, attracting strong demands from investors. It sold 5-year bonds for $1.5 billion and 10-year bonds for $1.5 billion with rates higher than U.S. Treasuries.
Aramco plans to use the funds to support its 2024 dividend policy, which is expected to grow significantly. Dividend payouts are projected to reach $124.3 billion, up from $97.8 billion the previous year.
The Saudi government, holding an 82% stake in the company, will receive the majority of the dividends, while the country’s sovereign wealth fund, which owns 16%, will also receive a substantial portion.
Increased borrowing amidst lower oil revenues
Aramco’s move to issue debt comes when oil prices are softer, and the company is producing below its full capacity due to cuts by OPEC+, a coalition of oil-producing nations led by Saudi Arabia. These production cuts are intended to maintain global oil prices, which have declined in recent months.
Analysts observe that Aramco’s total borrowings have increased, as reported by Reuters, and this is due to the increase in dividend payments and funding of capital expenditures. Monica Malik, the chief economist of Abu Dhabi Commercial Bank, revealed that “Aramco’s dividend outstripped the firm’s free cash flow in the first half of this year.”
Aramco’s role in Saudi vision 2030
Aramco is also important for Saudi Arabia because it is the main financial pillar of the nation’s Vision 2030 project, the economic diversification plan designed to weaken the country’s reliance on oil. It is through tapping this steady revenue source that the company can finance several projects essential in the realisation of this vision.
Aramco is dedicated to supporting dividends and capital projects despite decreased oil income. This year it secured $6 billion through a bond sale and has consistently relied on financing to control expenses and uphold its status as a leading worldwide energy supplier.
