Once the most valuable company in the world: Aramco pays mega dividends with debt

The world's largest oil producer, Saudi Aramco, fueled the crash in the oil market itself. That tears a huge hole in the balance sheet. Nevertheless, the company wants to pay out a huge dividend of $ 75 billion. The main shareholder urgently needs the money.

The Saudi oil company was considered the most profitable company in the world when it went public last December. The company's value quickly rose to more than $ 2 trillion at times, more than any other public company, also because of the promise to pay dividends of at least $ 75 billion a year. With a profit of more than 110 billion dollars a year, which the Saudi state company had made in 2018, that shouldn't be a problem.

Crude oil WTI 42.28

But then Corona came and oil prices plummeted dramatically. At times the price for the US crude oil WTI even fell below zero. The oil market has since recovered and prices are back around two thirds of the pre-crisis level. As with other oil companies, the crisis is fully reflected in Aramco's balance sheet for the second quarter of this year. The profit collapsed by about three quarters of nearly 25 billion dollars in the same quarter last year to 6.6 billion dollars. Since last week, Aramco has fallen behind Apple for the first time in terms of market value.

The crisis shows that, despite the IPO, Aramco is far from being a normal group. Unlike almost all private competitors, Aramco did not react to the falling prices by reducing oil production, but actually increased production to a record level and ultimately caused the crash on the oil market itself, which is now hailing the company's balance sheet. It turns out that at Aramco, the political considerations of the 98 percent main owner, the Saudi state, take precedence over the financial interests of the company itself.

At the same time, Aramco enables the Saudi government to do the trick of simultaneously depressing the oil price in order to put pressure on adversaries like Russia, and yet not foregoing revenue – at least for the time being. Because Saudi Arabia has plunged into a deep budget crisis due to the corona pandemic. The deficit is likely to rise to around 12 percent of the oil country's economic output.

But the government can rely on Aramco's dividend. It intends to continue to distribute $ 75 billion, said CEO Amin Nasser. For the past quarter alone, $ 18.75 billion will be paid. For this, Aramco will borrow more than $ 12 billion.