Bankers for Saudi Aramco’s initial public offering have dangled the possibility of bonus payouts that could take the company’s annual dividend past $100bn in an effort to woo investors for a flotation tipped to be the biggest ever.
The banks charged with launching the listing have been told that shareholder payouts could be far greater than the promised minimum annual dividend of $75bn during the next five years.
“Aramco management has stressed the possibility of additional distributions to shareholders above and beyond the minimum dividend pledge,” Bank of America Merrill Lynch said in a report for investors seen by the Financial Times.
The BofA report — reflecting the messaging by Saudi officials — is one of several by global banks hired to drum up interest in a flotation that could happen as early as next month.
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It sets out how higher oil prices, rising free cash flow and borrowing towards the company’s self-imposed limits could make additional payouts possible. The dividend would also grow in line with Saudi inflation or economic growth, which BofA forecast at 3 per cent a year.
BofA, which values the company between $1.2tn and $2.3tn, said that, with an oil price of $60 a barrel, the additional dividend between 2020 and 2023 could average as much as $11.5bn a year, giving an annual total of $86.5bn.
If oil averaged $70 a barrel over the next four years, the extra $18bn of free cash flow would allow the additional annual dividend payment to reach $30bn, meaning a total payout of $105bn.
Brent crude hovered around $62 a barrel on Thursday and there is some concern that investors might balk at what some people regard as overly optimistic oil-market scenarios.
One analyst said the prospect of $70-a-barrel oil was unlikely and investors should consider the implications of oil falling to $50 a barrel or lower. “This is marketing material,” said another banker.
Saudi Aramco has in recent weeks said that if, during the next five years, the company fell short of the minimum payout, dividends to non-government shareholders would be prioritised so they receive a pro-rata share of a $75bn equivalent dividend.
Saudi Aramco has a self-imposed gearing target of 15 per cent, which gives it room to increase borrowing. But analysts have questioned the implications for the dividend should oil prices slide, forcing the Saudi-led Opec oil cartel to cut production drastically.
The emphasis on payouts that far exceed other listed oil and gas companies comes as Riyadh seeks to secure the highest possible valuation for the company. The kingdom has also changed royalty rates and cut corporate tax, while Saudi Aramco has curbed its longer-term capital spending.
Until now, Royal Dutch Shell has been the world’s biggest dividend payer, handing out almost $16bn in 2018. ExxonMobil came in second paying $13.8bn while technology company Apple paid $13.7bn.
Saudi Aramco, which made a net income of $111bn in 2018, is eyeing a listing of 1 per cent to 3 per cent of the company on Riyadh’s Tadawul exchange, which would raise $20bn to $60bn at a $2tn valuation.
People close to the process say Crown Prince Mohammed bin Salman has tempered his expectations for a $2tn valuation, believing that a successful IPO is more important than hitting his target.
While domestic demand for the offering has been strong, with many wealthy Saudis being pressured by the state to invest, some foreign institutions have given it a cool reception. Many overseas investors have been arguing for a $1.2tn-$1.5tn valuation.
The focus on dividends also comes because those working on the IPO are pitching the Saudi Aramco share sale more like a bond. Saudi Aramco’s debut bond was oversubscribed in April, generating a yield of 3.1 per cent.
BofA gives a 2020 dividend yield range from 3.6 per cent at a $2.1tn valuation, to 6.7 per cent at a $1.1tn valuation, compared with an average yield of 4 per cent for US oil companies and 6.4 per cent for European majors.
Boosting dividend returns would help ameliorate investor concerns over governance, state interference in the country’s main revenue earner, and the security of energy assets after attacks on oil infrastructure.
“If Mike runs he would offer a new choice to Democrats built on a unique record running America’s biggest city, building a business from scratch and taking on some of America’s toughest challenges as a high-impact philanthropist,” Mr Wolfson said.
A campaign would raise questions about the future of Mr Bloomberg’s eponymous financial data company, which is the source of his wealth. Mr Bloomberg told an Iowa radio station last December that he would either put Bloomberg LP in a blind trust or sell it if he were to run.
Analysts have questioned Mr Bloomberg’s chances of winning over large numbers of Democratic primary voters, but see a campaign by the centrist New Yorker posing a particular challenge to Mr Biden. Both are white men in their 70s who appeal more to the party’s moderate wing.
Larry Sabato, a University of Virginia politics expert, said it was unclear how Mr Bloomberg would win the nomination.
“I’m not sure what his path is, or if he even has one. You can’t buy a nomination,” said Mr Sabato, pointing to the case of Tom Steyer, another billionaire who has spent millions but has gained little traction. “Bloomberg must think Democrats want to reject the field they have. Actually, most Democrats seem reasonably happy with their choices.”
Billionaires have been the butt of stump speeches by candidates, including Mr Sanders and Ms Warren, as the party debates policies from universal healthcare to a wealth tax. Mr Steyer is polling less than 1 per cent nationally, according to an average of recent polls by RealClearPolitics.
The Warren campaign said the move revealed that the wealthy were scared. Her team trolled Mr Bloomberg on Twitter, copying him on a tweet promoting her “calculator for billionaires” tool. The calculator shows how much more billionaires would pay in taxes if Ms Warren became president.
“They’re doing whatever they can to try to stop Elizabeth and our movement from winning in 2020 and bringing big, structural change in 2021,” the Warren campaign said.
Cory Booker, the New Jersey senator who has been unable to break out in the polls, used the news about the Bloomberg move to raise money from his supporters.
“Michael Bloomberg is planning to file petitions tomorrow to get on the presidential ballot in Alabama,” the Booker campaign told supporters in an email. “We already have one self-funding billionaire in this race, and it looks like we just got another.”
Mr Bloomberg has been a big political donor. He spent more than $100m to help Democrats in the 2018 midterms, in addition to his campaigns through Bloomberg Philanthropies on issues such as climate change, gun control and tobacco cessation.
His adviser Mr Wolfson said in a statement: “Based on his record of accomplishment, leadership and his ability to bring people together to drive change, Mike would be able to take the fight to Trump and win.”
Mr Bloomberg also considered making a run for president as an independent in 2016, but decided not to proceed because he could not see a path to victory. He was also worried that he would make it easier for Mr Trump to win the presidency.
The billionaire had even vetted Mike Mullen, a respected retired admiral who served as the chairman of the joint chiefs of staff, to serve as his running mate.
Mr Bloomberg would become the 18th contender in the 2020 Democratic field, which has shrunk from 26 candidates. New York City mayors have a poor record in races for higher office. Bill de Blasio, the incumbent, withdrew from the Democratic race in September.
