Saudi Aramco plans to increase its debt level with a focus on value creation and dividend growth, the company's chief financial officer said.
“We’re going to do two things,” Ziad Al-Murshed, the company’s chief financial officer, said in an interview in Boston. “The first is to increase the level of debt rather than relying on equity. It’s not about dividends; it’s about improving the capital structure, to achieve the lowest possible average cost of capital.”
Aramco has tapped debt markets twice this year, issuing $6 billion in international bonds in June, followed by a $3 billion sukuk in September, after being absent from debt markets since 2021. “We were in a position where we didn’t go to the market for those three years until the market was right,” Al-Murshid said.
Aramco is a key component of the Saudi economy, with oil sales and generous dividends helping to fund the massive spending plans led by Crown Prince Mohammed bin Salman. But the company has been hit this year by lower crude prices, with its production at its lowest in nearly three years.
Growing profits despite lower production
Aramco has increased its dividend by 4% over the past two years, bringing total base dividends to more than $81 billion, according to the advisor, who added: “We look forward to achieving gradual growth in dividends over the coming years, relying on free cash flows.”
The advisor indicated that debt sales will be regular but not very frequent, with no plans to issue more debt during the rest of the year. He added: “We seek to be active without being excessive,” noting that one of the company’s goals in selling debt is to expand the investor base.
Questions about dividend financing
The advisor did not specify whether Aramco would resort to borrowing to support dividends expected to reach $124 billion this year, exceeding the company’s profits. That pushed the company to record net debt in the third quarter for the first time since the third quarter of 2022, after having more than $27 billion in net cash a year ago.
Aramco’s dividend consists of two parts: a quarterly base payment of $20.3 billion that covers about 95% of free cash flow, and a performance-related payment of $10.8 billion per quarter this year.
Starting next year, the performance portion will be calculated as a percentage of free cash flow remaining after core distributions and investments, the advisor explained. “When we close the books in 2024, we will adopt that formula and distribute whatever the resulting amount is,” he said.
Low debt compared to competitors
Aramco’s leverage ratio — the ratio of net debt to equity — of around 2% is low compared to its peers, and Al-Murshid said the company is not targeting a specific ratio. “You will notice that our leverage ratio goes up and down with market cycles,” he said.
