Saudi Aramco plans $75bn dividend in IPO push

Saudi Arabia has boosted efforts to woo investors to the long-awaited stock market listing of Saudi Aramco by announcing an annual dividend of $75 billion (€69 billion) while scaling back global expansion plans at the oil company to increase cash flow.

Riyadh is also planning to change state royalty payments and cut corporation tax as the kingdom pushes to secure a $2 trillion valuation for the state energy group, five people briefed on the matter said.

Although $1tn-$1.5 trillion is deemed a more realistic price for the world’s most profitable company, advisers have been aiming for a higher figure to placate Crown Prince Mohammed bin Salman.

The listing of the company is at the heart of Prince Mohammed’s ambitious plans to revamp the kingdom’s economy, with tens of billions of dollars urgently needed to fund megaprojects and develop new industries.

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“The government is doing everything it can possibly do to get to $2 trillion. There is an aggressive push to get this listing done,” said a person briefed on the process. Prince Mohammed injected new impetus into the flotation after it stalled last year and is seeking a listing before the end of the year.

The plan to change royalty payments and cut the tax rate was in place before attacks on Saudi energy infrastructure this month halved its oil production. Riyadh is also pressuring rich Saudi families to take a stake in Saudi Aramco to bolster the company’s valuation, the FT has reported.

Saudi Aramco on Monday said the per-barrel royalty would be “amended” from next January to 15 per cent when Brent crude, the industry benchmark, drops below $70 a barrel. The rate will increase to 45 per cent when prices are between $70 and $100, and 80 per cent when they rise above $100. This is a change from initial plans for a 20 per cent base rate and a 50 per cent peak, three people familiar with the matter said.

Investor payouts

News of the investor payouts came the day after Prince Mohammed warned that oil prices could skyrocket to "unimaginably high numbers" due to tensions with Iran. In an interview with CBS on Sunday evening, he predicted that war between the two countries would lead to "a total collapse of the global economy".

Saudi Aramco also pays corporation tax to the state, which the kingdom cut from 85 per cent to 50 per cent in 2017. It is expected to fall further to bring it more in line with international peers, three people briefed on the matter have said. Major oil and gas companies pay closer to 30 per cent.

While Saudi Aramco is adopting the fiscal changes to make the company more investable, one person familiar with the measures said they could end up creating more uncertainty. “If they’ve done it twice, why wouldn’t they do it a third or fourth time?” he said.

In an unprecedented move, Saudi Aramco said that if shareholder handouts between 2020 and 2024 were less than $75 billion, “dividends to non-government shareholders are intended to be prioritised so that they receive their pro-rata share”.

At a valuation of $2tn, the dividend yield would be around 3.75 per cent, which is lower than for international rivals. Investors receive a yield of around 6.3 per cent for Royal Dutch Shell and 4.9 per cent for ExxonMobil, according to S&P Global data.

Among the global projects to be curtailed are refinery deals in south-east Asia and South Africa, and a domestic project to convert crude oil to chemicals with Sabic, the Saudi petrochemicals group, two people briefed on the matter said.

Copyright The Financial Times Limited 2019