Oil giant Saudi Aramco has revealed it made the world’s biggest corporate profit last year, opening its secretive accounts for the first time as it prepares to raise funds from investors.
International ratings agencies Fitch and Moody’s got rare access to Aramco’s accounts which show net profits reached $111 billion (£84.6 billion) last year.
It comes as Aramco prepares to sell bonds on the international market to help finance the purchase of a 70-percent stake in Saudi petrochemical behemoth SABIC for $69.1 billion (£52.7), effectively merging the kingdom’s two largest companies.
Saudi Arabia’s Aramco, the national oil firm of the world’s leading exporter, has posted profits of $111 billion (£85 billion)
The huge deal gives Crown Prince Mohammed bin Salman’s ambitious reform programme aimed at diversifying the economy a massive cash boost.
Moody’s Investors Service said Aramco posted a net profit of $111.1 billion (£84.8 billion) in 2018 — far higher than the combined net earnings of the five international oil majors — and generated $359.9 billion (£274.5 billion) in revenues.
Last year US oil giants Chevron and Exxon Mobil, Britain’s BP, Anglo-Dutch rival Royal Dutch Shell and France’s Total together posted nearly $80 billion (£61 billion).
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Aramco also dethroned Apple as the world’s most profitable firm. Last year the US tech giant posted nearly $50 billion (£38 billion) in net profits.
Fitch Ratings, which also saw the accounts, said Aramco reported $224 billion (£171 billion) in earnings before tax and depreciation, while maintaining low debt levels.
However, both Fitch and Moody’s gave state-owned Aramco a credit rating of just A+ and A1 respectively, with a stable outlook, since the majority of its revenue is taken by the government to finance its ever-increasing spending.
Based on its finances, massive hydrocarbon reserves and low production cost, its stand-alone rating would have been a top AA+ on an equal footing with international oil companies, Fitch said.
The planned merger of Saudi oil and petrochemical giants Aramco and SABIC is rreportedly a key plank Crown prince Mohammed bin Salman’s reform programme
‘Saudi Aramco has many characteristics of a Aaa-rated corporate (top rating), with minimal debt relative to cash flows, large scale of production, market leadership and access in Saudi Arabia to one of the world’s largest hydrocarbon reserves,’ said Rehan Akbar, vice president at Moody’s
The first-ever ratings for Aramco come as it prepares to sell bonds to finance the purchase announced last week of a majority stake in SABIC.
‘International bond issuance by Aramco would be a landmark event,’ M.R. Raghu, research head at the Kuwait Financial Centre, said.
It would help test investor interest and appetite before the potential listing of the firm, Raghu told AFP.
The SABIC deal follows long delays in a proposed sale of Aramco shares to raise up to $100 billion (£76 billion) to finance Prince Mohammed’s Vision 2030 reform programme.
The murder of Saudi journalist Jamal Khashoggi inside the kingdom’s Istanbul consulate last year, coupled with a sweeping crackdown against dissent, unnerved many investors.
Fitch said that based on information received from Aramco, the planned sale of up to five percent of Aramco through an initial public offering (IPO) still stands and is likely to take place in 2021.
The brainchild of Saudi Crown Prince Mohammed bin Salman, the Vision 2030 reform programme aims to diversify the kingdom’s economy which has been heavily dependent on oil
Saudi Arabia already has around $500 billion (£381) of assets managed by its central bank.
But even so, the SABIC deal will give the Public Investment Fund, one of the kingdom’s sovereign wealth funds, much-needed cash to carry out Vision 2030.
The PIF, which aims to control more than $2 trillion (£1.5 trillion) by 2030, is leading efforts to transform the petro-state to a tech-focused economy.
The fund has major global investments including a stake in ride-hailing app Uber.
Moody’s said that considering Aramco has a substantial cash flow generation capacity, it can fund the SABIC deal without the need to borrow.
‘This acquisition will strengthen the company’s business profile given that downstream assets typically provide countercyclical cash flow benefits,’ it said in reference to the volatility of oil prices.
Moody’s said Aramco’s average daily crude oil production last year was 10.3 million barrels, around 1.7 million barrels below its maximum sustainable output capacity.
Aramco estimates its proven oil reserves at 227 billion barrels and its total hydrocarbon reserves at 257 billion barrels of oil equivalent, which implies a reserve life of 52 years — a comfortable level by international standards, Fitch said.
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