Saudi Aramco has been revealed as the world’s biggest profit producer in the first official glimpse of its finances, as the state oil company courts investors ahead of its debut international bond sale.
The company generated $111.1bn in net income last year, according to a prospectus accompanying the sale, almost double that of iPhone maker Apple and five times that of the biggest-earning rival oil producer, Royal Dutch Shell. Having delayed a much-heralded initial public offering, Saudi Aramco has turned to debt investors to help pay for its $69bn purchase of local petrochemicals company Sabic. The sale will also provide a test of fund managers’ willingness to back a company whose influence in the global oil market is tied to its historic backing from the Saudi Arabian government. Moody’s and Fitch assigned the company ratings of A1 and A+ respectively, but said that the oil producer’s close links to the kingdom acted as a cap on its creditworthiness.
US producer ExxonMobil, for example, is rated Aaa by Moody’s. The rating agency said that Saudi Aramco had many characteristics of a Aaa-rated borrower — such as minimal debt relative to cash flows, large scale production, market leadership and access in Saudi Arabia to one of the world’s largest hydrocarbon reserves — but its final rating was restrained to A1 “because of the close interlinkages between the sovereign and the company”. JPMorgan Chase and Goldman Sachs are among the advisers Saudi Aramco has hired to sell the bonds, which could include 30-year debt, and comes as the oil price has partly recovered from a plunge in the fourth quarter. However, the rare window into the finances of Saudi Aramco, which produces more than 10 per cent of the world’s crude, also show that the state’s reliance on the company means it generates less per barrel than privately owned competitors.
The government in Riyadh relied on the oil sector for 63 per cent of its total revenue in 2017, according to the prospectus. The tax take from the kingdom meant the oil company made approximately $26 a barrel last year compared with $38 a barrel for Royal Dutch Shell and $31 a barrel for France’s Total. In 2018 Saudi Aramco generated $224bn of earnings before interest, tax, depreciation and amortisation.
The Sabic transaction will see money transferred into Saudi Arabia’s Public Investment Fund (PIF), which is the vehicle that Crown Prince Mohammed bin Salman has chosen for carrying out his ambitious plans to overhaul the Saudi economy and diversify it away from oil. Officials had hoped a stock market listing of Saudi Aramco would have seen $100bn funnelled into the PIF. Saudi Aramco, which dates back to the 1930s, has issued bonds in local currency, but the expected $10bn international deal is expected to be well-received.
In its assessment, Fitch noted that the company’s “high production, vast reserves, low production costs and very conservative financial profile” would give it a standalone rating of AA+, but said it would cap its rating at A+ due to the links between the company and the sovereign and the influence the state had on the company through regulating the level of production, taxation and dividend.
Additional reporting by Anjli Raval
