By Sonny Atumah
It might have come as a surprise to many that Saudi Aramco was rated the world’s most profitable company in 2018. With an earning of US$224 billion, Aramco the Saudi Arabia’s national oil company, generated far and above any company in the world last year. It surpassed Apple, Samsung Electronics and Alphabet Inc.
According to Fitch, Aramco is by far the world’s biggest oil producing company, ahead of other national oil companies and listed oil majors Shell, Total, BP and indeed, ExxonMobil, the world’s largest listed oil firm, as reported this week.
The Aramco’s earning is however, before interest, tax and depreciation and amortization (EBITDA) Fitch said on Monday. Aramco, as a fully state owned company’s ratings are in line with the credit rating of Saudi Arabia. The Kingdom has managed its resources by playing close to its chest, which many tried to pry into.
Credit experts say Aramco could outweigh its international peers, but most of its assets are in Saudi Arabia and it is tightly linked to Saudi Arabia’s economic policies until recently. Aramco’s rating is constrained by that of Saudi Arabia (A+/Stable). This reflects the influence the state exerts on the company through taxation and dividends, as well as regulating the level of production in line with its OPEC commitments,” Fitch said.
Is Aramco’s perceived mystery over? An investment banker, Matthew R. Simmons, in his book, Twilight in the Desert, published in 2005, tried without success to unravel what appeared like a mystification of Saudi oil. Simmons in that publication, believed to have been culled information from technical papers presented to the Society of Petroleum Engineers about Aramco almost portrayed the extremities of Saudi Arabia’s oil fields. He concluded that Saudi Arabia’s fields were ready to collapse and asserted that Saudi Arabia actually had much less oil than they made people to believe. Of course, the Saudis debunked Simmons claims but had sealed lips on their operational secrets by not allowing third parties to review data on its reserves, which it considered a matter of national security. Will the myth be broken as Aramco started meeting international bond investors this week for its debut in the international capital markets? Aramco intends to issue its first United States dollar-denominated bonds, expected to be for at least US$10 billion, after completing a bond “road show” this week. It might have met with investors in Asia, Europe and the United States through until yesterday, April 5, ahead of a multi-tranche dollar bond, according to a document issued by one of the banks leading the deal and seen by Reuters.
Aramco’s first-ever credit ratings; ahead of the state oil giant’s first global bond sale and following 2018 earnings dwarfed those of oil super majors. Credit ratings allow investors to compare and assess the credit quality of bond issuers and their debt securities, and are important in determining how much borrowers have to pay. Fitch rated the Aramco A+ while Moody rated it A1 ahead of the company’s issuance of a US$10 billion bond to help pay for its acquisition of a 70 percent stake in Saudi Basic Industries Corporation, SABIC from the Saudi Public Investment Fund, PIF for US$69.1billion. Credit experts believe Saudi Aramco has what it takes for an AAA-rating. It has large scale of production, access in Saudi Arabia to one of the world’s largest hydrocarbon reserves, minimal debt relative to cash flows, and market leadership.
Saudi Aramco has an extremely strong liquidity position, Moody’s said. As of the end of 2018, it had $48.8 billion in cash against $27 billion in reported debt. At the end of 2018, Aramco’s cash balances exceeded its balance-sheet debt, Fitch said. But it is “less integrated into natural gas and downstream than some of its international peers, such as Shell and Total, which makes it more exposed to oil prices volatility although this is mitigated by low cost of production, its downstream expansion strategy, and the acquisition of SABIC.” Last week, Aramco acquisition of 70 percent stake in SABIC from the kingdom’s wealth fund for US$69.1 billion, is one of the biggest deals in the global chemical industry. The Saudi credit rating no doubt may facilitate its abeyant Initial public Offering, IPO.
The Saudis are determined to reinforce and diversify the capabilities of their economy, by transforming Aramco from an oil producing company into a global industrial conglomerate. Perhaps the Vision 2030 of Crown Prince Mohammed Bin Salmon, MBS may be doing the magic. His vision is to transform the Public Investment Fund into the world’s largest sovereign wealth fund and encourage major corporations to expand across borders and in global markets. He hopes to adopt wide-ranging transparency and accountability reforms to measure the performance of government agencies. Late February, Saudi Aramco CEO Amin Nasser gave a fervent speech at London Petroleum Week about the ‘crisis of perception’ facing the oil and gas industry. For Nasser, it meant “being ahead of other industries when it comes to business ethics, codes of conduct, compliance, and internal controls, backed by effective oversight and accountability.