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Saudi Aramco is the world's most profitable company, but where is all the money left?




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Saudi oil giant Saudi Aramco unveils some of his works The best-kept secrets of the week: FitchRatings has released the press release on its very first credit rating (A +), including some financial information, adding Aramco's earnings before interest, taxes, depreciation and amortization to $ 224 billion in 2018.

  TURKEY PETROLEUM

A Saudi Arabian Oil Co. (Aramco) logo will be on display on Wednesday, July 12, 2017 during the 22nd World Petroleum Congress in Istanbul (Turkey). Oil fell from its lowest closing price in two weeks as © 2017 Bloomberg Finance LP

This gives us some important new insights into this mysterious company and about the Kingdom of Saudi Arabia, but still leaves a lot to be desired important questions.

  1. As suspected, Aramco is the most profitable company in the world. For most measurements, it is probably the most valuable company that would currently give Aramco a potential IPO of at least more than $ 1 trillion.
  2. We now have an idea of ​​the revenue of Saudi Arabia. In anticipation of an Aramco IPO, in 2017 Saudi Arabia lowered the income tax Aramco pays to the government from 85% to 50%. To be clear, we do not know the peculiarities of the accounting rules, but at a rate of 50%, Aramco has probably paid about $ 100 billion in income tax for 2018. Fitch estimates that Aramco "made up about 70% of the country's state budget revenue." If Fitch is right, Saudi Arabia would expect a budget of about $ 143 billion. (This is a rough estimate, and it must also be taken into account that Aramco also pays the government rents, fees, VAT, licenses and customs duties, and it is unclear how and if Fitch included this in its assessment). Saudi Arabia has also announced this week to issue $ 31.5 billion in debt in 2019. Moody's says that Aramco paid dividends of $ 58.2 billion to the "Saudi government" in 2018. It is unclear whether this is the case. This figure is included in Fitch's calculations for Aramco's total Saudi Arabian revenue. In this case, budget revenues in Saudi Arabia are significantly higher.
  3. Aramco eventually brings with him about $ 80 billion or more (possibly much more) cash. Moody's now says The net income of Aramco in 2018 was $ 111.1 billion. At the end of 2017, Aramco announced that it would spend $ 40 billion a year on investment for ten years. Aramco is able to meet its $ 40 billion plans and more. Fitch reported that Saudi Aramco had $ 49 billion in "cash" at the end of 2018. Obviously, Aramco is collecting cash, especially since the income tax rate has been lowered. But even after the capital increase and the cessation of cash Aramco's profit could still be quite large. What is Aramco planning for its future profits beyond reinvesting in its core business and accumulating funds? Will the company be "the shareholder?" Pay a high dividend? (Note: There are various interpretations of who is the "shareholder" of Aramco.) In my book Saudi, Inc. I declare that the owner is either the government or the king is both sides). If there is a dividend, does it go into the personal wealth of the king or the government? According to Moody & # 39; s report, Aramco gave the "Saudi government" 2018 dividends of $ 58.2 billion. This reminds us that, despite the reduction in the tax rate in 2017, the Monarchy still found a way to adequately finance itself from Aramco's business. Will this high dividend rate continue, especially if an IPO is due? Investors would need to know if their share class has the same dividend rate as the class owned by the Saudi monarchy and the government. In that case, Aramco's listed shares could be very valuable. If this is not the case, investors might shy away from a company that sends so much cash to the majority shareholder.

The information available in Fitch's press release is clearly nothing compared to what would be available before an initial public offering.

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Saudi Aramco, the Saudi oil company, is unveiling some of its best-kept secrets this week, with FitchRatings releasing the press release on its very first corporate bond (A +), including some financial information, in 2018 Aramco earnings before interest, taxes, depreciation and amortization $ 224 billion.

  TURKEY PETROLEUM

A Saudi Arabian Oil Co. (Aramco) logo is on display at the 22nd World Heritage Congress on an electronic display congress in Istanbul, Turkey , on Wednesday, July 12, 2017. Oil has dropped from the lowest closing price in two weeks © 2017 Bloomberg Finance LP

This gives us some important new insights into this mysterious company and about the Kingdom of Saudi Arabia, but it still leaves very important questions.

  1. As suspected, Aramco is the most profitable company in the world In most measurements, it is probably also the most valuable company that would currently give Aramco a potential IPO of at least more than $ 1 trillion.
  2. We now have an idea of ​​the revenue of Saudi Arabia. In anticipation of an Aramco IPO, in 2017 Saudi Arabia lowered the income tax Aramco pays to the government from 85% to 50%. To be clear, we do not know the peculiarities of the accounting rules, but at a rate of 50%, Aramco has probably paid about $ 100 billion in income tax for 2018. Fitch estimates that Aramco "made up about 70% of the country's state budget revenue." If Fitch is right, Saudi Arabia would expect a budget of about $ 143 billion. (This is a rough estimate, and it must also be taken into account that Aramco also pays the government rents, fees, VAT, licenses and customs duties, and it is unclear how and if Fitch included this in its assessment). Saudi Arabia has also announced this week to issue $ 31.5 billion in debt in 2019. Moody's says that Aramco paid dividends of $ 58.2 billion to the "Saudi government" in 2018. It is unclear whether this is the case. This figure is included in Fitch's calculations for Aramco's total Saudi Arabian revenue. In this case, budget revenues in Saudi Arabia are significantly higher.
  3. Aramco eventually brings with him about $ 80 billion or more (possibly much more) cash. Moody's now says The net income of Aramco in 2018 was $ 111.1 billion. At the end of 2017, Aramco announced that it would spend $ 40 billion a year on investment for ten years. Aramco is able to meet its $ 40 billion plans and more. Fitch reported that Saudi Aramco had $ 49 billion in "cash" at the end of 2018. Obviously, Aramco is collecting cash, especially since the income tax rate has been lowered. But even after the capital increase and the cessation of cash Aramco's profit could still be quite large. What is Aramco planning for its future profits beyond reinvesting in its core business and accumulating funds? Will the company be "the shareholder?" Pay a high dividend? (Note: There are various interpretations of who is the "shareholder" of Aramco.) In my book Saudi, Inc. I declare that the owner is either the government or the king is both sides). If there is a dividend, does it go into the personal wealth of the king or the government? According to Moody & # 39; s report, Aramco gave the "Saudi government" 2018 dividends of $ 58.2 billion. This reminds us that, despite the reduction in the tax rate in 2017, the Monarchy still found a way to adequately finance itself from Aramco's business. Will this high dividend rate continue, especially if an IPO is due? Investors would need to know if their share class has the same dividend rate as the class owned by the Saudi monarchy and the government. In that case, Aramco's listed shares could be very valuable. If this is not the case, investors might shy away from a company that sends so much money to the majority shareholder.

The information available in Fitch's press release is clearly nothing compared to what would be available before an IPO.


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