Saudi firms to cut dividends to fund Prince’s $ 1.3 trillion plan


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(Bloomberg) – Saudi Arabia’s biggest listed companies, including energy giant Aramco, will cut dividends and redirect money to the local economy as the crown prince tries to put off his economic overhaul plan on rails.

Twenty-four companies such as Saudi Basic Industries Corp., Almarai Co., Saudi Telecom Co., and National Shipping Co. have agreed to join the plan, contributing 5 trillion riyals ($ 1.33 trillion) in spending. national capitals over the next 10 years, said Crown Prince Mohammed bin Salman.

The new plan comes after last year’s coronavirus pandemic and turmoil in the oil market created a double crisis for Saudi Arabia, pushing back 35-year targets to boost the non-oil economy and reduce unemployment .

Businesses will benefit from additional subsidies and the opportunity to lobby for the law to change, he said.

Minority shareholders of Aramco – the world’s largest oil company and 98% owned by the kingdom – will still receive dividends, the kingdom’s de facto leader said. Those in other companies will benefit from rising stock prices as the economy grows, he said.

“What we are trying to create is growth in Saudi Arabia: GDP growth, more jobs in Saudi Arabia, more income for the Saudi government and a better life for the Saudis,” the prince said on Tuesday. during a night briefing with journalists. in Riyadh. “It will not hurt the shareholders of these companies because instead of receiving cash dividends, you will get growth in the stock market.”

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Radical transformation

Cutting dividends for reinvestment is not necessarily bad news for investors in Saudi markets, according to Hedi Ben Mlouka, managing director of FIM Partners in Dubai.

“You will lose on the dividend yield, but you will gain on the growth momentum,” he told Bloomberg Television on Wednesday. “This is how any long-term investor should look at it. It is a country in the midst of transformation. You have to accept a change like this which is drastic. “

The 5 trillion riyal of private companies is part of a 27 trillion riyal plan announced by Prince Mohammed on Tuesday, outlining a series of investments planned over the next 10 years. Central government spending will amount to around 10 trillion riyals over the same period, while the sovereign wealth fund previously announced that it plans to invest 3 trillion riyals on top of that, he said.

Read more: Saudi Jobs for Saudis: The Crown Prince’s Generational Challenge

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Another 4 trillion riyals of the ten-year plan will come from private investment in an as yet unannounced national investment strategy, while the final 5 trillion riyals will come from ordinary consumer spending.

Diversify the economy

The announcement highlighted how much the prince’s attention is turning to the country as he tries to diversify the economy of the world’s largest oil exporter and create enough jobs for the kingdom’s young population. It also showed that the government relied on the struggling private sector to boost growth – which has long depended primarily on public spending.

“It’s definitely a pressure on companies, to mandate domestic investments,” said Karen Young, resident researcher at the American Enterprise Institute in Washington. “He considers that several generations of shared savings are his and his generation to spend, and the bet is therefore to be able to deploy this and revive a post-oil era.”

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The government is still negotiating with other companies to join the program, but about 60% of the 5,000 billion riyal will come from Aramco and Sabic alone.

“The dividend of the Aramco shareholder will be stable,” he said. “We promised them this and we will keep our promise.”

“Go sell”

In return for the participation of companies, “we are going to give them subsidies, we are going to change the laws as they wish and we are going to make their wish list to make it happen,” he added.

Prince Mohammed also said the kingdom’s wealth fund, the Public Investment Fund, would seek to sell some of its local holdings in order to support new investments.

Read More – What Now for Saudi Arabia’s Planned $ 2 Trillion Fund?

“We shouldn’t keep our share forever, whatever mature investment we have, we’re going to sell,” the crown prince said. “So if you own 70% of a business, that’s wrong – PIF would own 30% of that business and they will sell 40%.”

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Last year, PIF finalized the sale of its 70% stake in Sabic to Aramco, in a deal that raised around $ 70 billion. PIF has significant stakes in many Saudi Arabian companies, including Saudi Telecom Co and National Commercial Bank. The prince did not comment on the specific asset sales the PIF was planning.

Overall, 90% of the 27 trillion rial plan will come from Saudi Arabia, he said. About 2 trillion riyals are expected to come from foreign investment, especially from the Middle East and from Western and Asian investors. This would translate into more than $ 50 billion in foreign investment per year, up from $ 4.6 billion in 2019.

“Yes, it’s ambitious. Yes, we have said a lot of ambitious things over the past four years, ”the crown prince said. “I think we can do it over the next 10 years.”

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