Saudi Aramco Profits Outshine its Oil Reserves
Last updated on April 14th, 2019
Saudi Arabia’s oil-beneficiary, Aramco, has long been in the headlines for all the controversial reasons. The state-owned firm has kept its earnings sheathed in velvet, hidden inside the royal treasure. However, the finances were recently unveiled for the first time, raising tensions for all the behemoths across the world.
As Saudi Aramco divulged its financial statements, the world learned that it generated net income of $111.1 billion in 2018, trouncing the US tech giant: Apple, with net income of $59.5 billion in the same year. Its earnings before tax, interest, depreciation and amortization were $224 billion. Besides, the Kingdom’s oil giant also outstripped other oil companies, including Exxon Mobil ($20.8 billion) and Royal Dutch Shell ($23.9 billion).
The revenue data of Aramco has remained a secret since its nationalization in the 1970s. However, decades after, the company was under a pressure to take off the veil, as it prepared to raise up funds through a bond sale.
According to the media reports, investors are eager to deal with Saudi’s oil company, where it has already drawn record-breaking $100 billion orders through its bond sale. On Tuesday, the company bankers raised the bond sale of $10 billion to $12 billion. The money is supposed to be used for Aramco’s purchase of 70 per cent stakes in Saudi Basic Industries Corp (SABIC), worth $69.1 billion.
Announced last month, the purchase was supposed to be made from Sovereign Wealth Fund of Saudi Arabia, which is owned by Crown Prince Mohammed bin Salman.
The deal between the two state-owned companies comes as an alternative plan amidst the escalating controversies around the Aramco initial public offering (IPO), which was a part of the economic diversification plans by MbS.
Saudi Arabia has been following an economic divergence plan to end its excessive dependency on oil. Consequently, a planned stock sale by Aramco was announced to raise funds. However, the idea was initially pulled back by Saudi King Salman, and later postponed to 2021. According to Reuters, sources explained that changes in plan were induced by the requirement of full public disclosure of Aramco’s financial details.
Still walking with the idea of diversification, the country has also been using its wealth fund to invest in various technological firms, including Uber and Tesla. While the Aramco IPO was postponed, the deal of SABIC’s stock purchase came as a plan B to capital-raising, and cutting Saudi’s dependency on oil and gas revenue.
Saudi’s determination of declining its dependency on its abundant oil returns have been moving at quite a remarkable pace. While the bond sale has been raised to $12 billion, Aramco’s order book is now approaching some of the biggest developed-market debt deals, despite its alleged deteriorating global reputation.
Weeks ago, Saudi’s economy appeared to be drowning in its oil-rich wealth. However, Crown Prince MbS has most likely saved it using a smart and well timed rescue tube. The decisions that the country will further make are likely to present greater clarity on the direction that its diversification plans will move towards.
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