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Dividend Cripples Saudi Aramco

160 points by syncsynchalt 5y ago

floxy 5y ago
Seems like the critical missing piece of information is Aramco's annual profits. "Saudi Aramco profit of $49 billion in 2020 is down from $88.2 billion in 2019 and $111.1 billion in 2018." https://apnews.com/article/dubai-saudi-arabia-united-arab-emirates-health-coronavirus-pandemic-672f523f199c133b4b9c819eea5acf6b https://apnews.com/article/dubai-saudi-arabia-united-arab-em... ...so if 2020 was an off year due to the pandemic, then the $75 billion/yr dividend probably isn't going to bankrupt them in the short term.
stefan_ 5y ago
Surely the stakeholders that are paid this dividend remain overwhelmingly Saudi (government) interests. So they made up this dividend to loot the place. I'm sure they had other ways of looting prior. What's the big difference?
- munk-a 5y ago
  From the article at least - the pre-agreed dividend (a thing I had no idea existed) is so onerous on the company that it can't keep up with payments. So the company is being forced to sell off long term investments and assets for a quick buck just to cover the dividend it's agreed to pay. It's like saying: "Hey, I've got an ice cream stand that I make 50$ of a week and has capital assets worth 200$. I wonder if I contractually agreed to donate 75$ worth of value every week - would that work well for me?"
  - deleted 5y ago
    [deleted]
  - draw_down 5y ago
    That’s just rehashing what’s in the article. GP is not asking why the dividend is bad for the company.
  - fy20 5y ago
    I wonder if there is something else going on, as this sounds like an awfully good way to cover up a sinking ship, yet still take money out for the stakeholders. In 5 years time when the company is bankrupt they can just come out and say the IPO was a bad idea, while the main stakeholders are sitting nicely in their gold plated Lamborghini's [0]. [0] I made that up, but turns out it is actually a thing: https://m.economictimes.com/nation-world/strange-things-saudi-princes-spent-money-on/when-money-matters/slideshow/56999098.cms https://m.economictimes.com/nation-world/strange-things-saud...
- LatteLazy 5y ago
  I think generally the looting is done at the top and then drip fed down: a Prince loots 100m and keeps 20 and passed 80 down to lessor and lessor people. That maintains their loyalty to that Prince. In roughly the same people get a dividend direct from SA, they don't have to keep coming and asking their particular prince or supporting his other efforts etc. This seems like it cuts out a lot of the middle men and just leaves MBS and the recipient... Also, as in understand it, a lot of people were basically forced to buy shares whether they wanted to or not (or lose favour). A big dividend semi reverses that. It's like forcing someone to pay a big fine then, majestically giving half back to show you're a beneficent and merciful king.
- random314 5y ago
  I found the dividend situation confusing too. On Google finance the dividend yield is 4%. Afaik, only 10% of the stock is not being held by the saudi government. Assuming 2T market cap, the dividend obligation is 8B$ to shareholders. But the article indicates an order of magnitude higher dividend obligation. Are there dividend obligations above and beyond what's visible in Google finance?
  - perl4ever 5y ago
    I believe a greater dividend has been promised than what is current, and the large figures are including the stock held by the government.
- perl4ever 5y ago
  People are like "oh, they're just paying it to themselves". Well, sure, they don't have to write down the dividend they pay to themselves, but that doesn't change the spending that presumably is allocated from the dividend. One motivation for formalizing things that you don't have to is that then you have better excuses for not doing certain things. While they made up the dividend, it wouldn't make "looting the place" more sustainable to get rid of it. Formalizing the "looting" does highlight its unsustainability and seems like a reasonable reason to write an article to me.
nelsondev 5y ago
With electric cars an inevitability, and natural gas outperforming oil; seems MBS is squeezing every cent out of Aramco while it is still worth something.
- munk-a 5y ago
  I'm curious if the house of Saud could survive Aramco collapsing though. For everything terrible you feel about them - they are constantly shoveling a whole boatload of value into a decent chunk of their population. If Aramco falls I think Saudi Arabia might find a lot of people that were happy to look the other way while they were being paid suddenly asking a lot of questions about national policies.
  - fakedang 5y ago
    The average Saudi does not live as comfortable a life compared to the 100k or so members of the Al Saud family and their cronies. You're right about the latter part though. An Aramco failure is going to be a significant dent on MBS' domestic perception.
    - munk-a 5y ago
      Yea, I agree. I'd clarify that "A decent chunk" above is meant to specifically refer to the politically powerful part of Saudi Arabia. Basically, the keys to power - so very few women and none of the poor folk.
      - martinald 5y ago
        Actually, I don't know how true this is. Saudi Arabia has an enormous welfare state - both officially with many subsidies, and and hoc "grants" that you can get off your local royal family representative for one off emergency expenses etc. In many ways this is what is bankrupting the country, much more than the rampant corruption (which is still enormous, but pales into comparison with public spending). The population of Saudi is absolutely exploding - nearly doubling every 20 years. It has a very young population with poor job opportunities, in a very energy intensive place to house people (AC demands and lack of fresh water). This had led to completely unsustainable public spending. The revenue from oil is enormous but it's not growing in line with population and welfare spending. And the Saudi royal family know the people will turn quickly against them if the welfare tap is turned off. They are in a really tricky position. While the royal family is outrageously wealthy, the country itself over the past decade is getting pretty broke. And with such population growth every year it becomes harder and harder to keep up. I imagine this is why MBS is trying to push economic reform so much, almost at all costs, because he knows the game is up. But it is going to be very difficult to turn this quite literal oil tanker around.
paxys 5y ago
Straight from the most trusted source of news & opinion in the investment world – oilprice.com. Aramco's dividend basically entirely goes to the Saudi government, which owns 98.5% of the company. It is still comfortably the largest oil company in the world, and is investing hundreds of billions in operations over the next few years. Here's a much more objective status report on the company – https://www.bloomberg.com/news/articles/2021-07-07/saudi-aramco-to-sell-more-assets-in-multi-billion-dollar-push https://www.bloomberg.com/news/articles/2021-07-07/saudi-ara....
- dragontamer 5y ago
  Somehow the writing style was bothering me and I couldn't quite put my finger on it. It was reading like a long-form Reddit rant more so than an actual article. Bloomberg one seems more based in facts on the ground. ------- That being said: the opinionated writing style of "oilprice.com" is still helpful at possibly explaining why these assets are being sold. But facts matter and should come first: the news event (Armaco deciding to sell more assets) should be presented objectively at some point before introducing an opinion about it.
  - Karrot_Kream 5y ago
    > This took the total capital spending down from around US$40 billion to around US$25 billion. Further reports stated that even this US$25 billion figure was reduced by another US$5 billion, taking the total capital spending in the year from US$25 billion to US$20 billion. However, every second of every day of every month of every year - whatever Aramco does, whatever it sells, whatever it cancels, whatever it cuts back, however many people it sacks – the meter keeps on running, adding US$205 million every day Notice the convenient change of units between billions and millions there which makes this seem much worse than it actually is. I also didn't realize Oilprice's bias, but seeing that change of units certainly warned me.
    - jsnell 5y ago
      The dividend "millions" are per day. The capital spending "billions" are per year. We'd already repeatedly been told that the dividends were 75 billion per year.
HenryKissinger 5y ago
What would stop Saudi Aramco from stopping all dividends and unilaterally write off its own debt?
- eyelovewe 5y ago
  Cultural values that would mean MBS and the House of Saud loses face and honor. (And future access to money)
- munk-a 5y ago
  I am curious about that as well since the article mentions > The most desperate of these was the pledge to guarantee a dividend payment to shareholders in Aramco of US$18.75 billion every single quarter of every single year – a total of US$75 billion every single year. I've never heard of a contractually binding agreement to drive yourself into bankruptcy via an overly generous dividend. From this FT article[1] it does sound like it's pretty voluntary though > Mr Nasser told reporters that “our intention is to pay $75bn, subject to board approval and depending on market conditions”. Minority shareholders, who own 1.5 per cent of the company, will be “protected” for the next five years and given priority payments, he said. 1. https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4914 https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4...
- JumpCrisscross 5y ago
  > What would stop Saudi Aramco from stopping all dividends and unilaterally write off its own debt? Nothing. Argentina defaults on its debt every Christmas, and its bonds still get bought. Aramco’s are a non-sovereign corporate’s equity dividends, where most of the shares are owned by the Saudi government and royal family.
  - gruez 5y ago
    >Nothing. Argentina defaults on its debt every Christmas, and its bonds still get bought wtf? Every christmas every year?
    - 55555 5y ago
habibur 5y ago
"Aramco’s debt to equity increased from minus 5 percent in early 2020 to plus 23 percent in March this year, where company’s own cap was 15 percent." And it went IPO in Dec 2019.
draw_down 5y ago
This is a funny read, though I’m not sure it’s meant to be.
bostonsre 5y ago
Is bankruptcy an option that this autocratic regime would take for their company or would it be too detrimental to the image of mbs? What happens if they just decide to stop paying international debt/bond holders? Is that even an option?
- danans 5y ago
  The old adage goes: "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." So perhaps somewhat conversely: "If the Saudis owe you $1 billion and decide not to pay you, that's your problem."
- elliekelly 5y ago
  Argentina did. Several times I think. It actually turned into an interesting legal issue (if you find the technicalities of these things interesting, at least) because of the language used in the settlement. https://en.m.wikipedia.org/wiki/Argentine_debt_restructuring https://en.m.wikipedia.org/wiki/Argentine_debt_restructuring
- reducesuffering 5y ago
  Oh it's an option. Just one that would preclude receiving anymore foreign investment for the next several decades.
moralestapia 5y ago
I can't feel bad for them. I lived there for four years (at KAUST), I am deeply familiar with the country and its people. The Saudis are nice and well-intended, but a few bad apples spoil the bunch. I left after my 4yo daughter was kidnapped(!) when I refused to sign some papers regarding my work situation. I am not making this up. The kidnapping was carried away by an Australian professor and a couple American guys working there, but when I tried to look for help I was horrified that this seemed to be business as usual and no one even batted an eye, no jurisdiction. Fortunately, we are safe now and doing better than ever, but, what a story. Until they fix many of these things it will be very hard for them to establish a thriving economy.
- mensetmanusman 5y ago
  KAUST was pushed hard as an option while I was at MIT, very curious as to how well the instruments were maintained for research, since it seemed like they bought anything asked for (if you have any stories :)).
  - moralestapia 5y ago
    Oh, I can write a book about all of the things I saw there! Send me an email (check profile) and we can chat for sure.
    - moltar 5y ago
      Please do a podcast series. A great example of a successful one is about the fiasco of building a Berlin airport. If you don’t want to produce yourself maybe reach out to a podcast studio. I’d looove to listen to your stories :)
      - moralestapia 5y ago
        That would be very nice. I'm actually collecting stories about academic abuse from all around the world. The plan is to launch a website with all stories together to get more exposure. This sort of abuse (not to the degree of what I suffered, but) is quite common within academy, this needs to stop, and the people who perform it/enable it need to be ousted from their positions.
kaminar 5y ago
How many outstanding shares? Are all shares entitled to the dividend?
- munk-a 5y ago
  According to an FT article I found[1] while digging up information about how mandatory the dividend is - it looks like minority shareholders are being given preference in receiving the dividend. Which makes a lot of sense if this was more of a PR stunt and less an effort to pull a bunch of company value into MBS's personal bank account. 1. https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4914 https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4...
FridayoLeary 5y ago
This might be controversial, but MBS sounds like a horrible, horrible person. Yes, he presents a civilized face to the West, and he's "progressive", but just look at the Khashoggi murder for example. But people seem to be blind to this very dark side of the Saudi leadership. He lets women drive. So that means he's an open minded liberal. What about every other country in the world where women have been allowed to drive since forever? I think it's hard to fix an institution that's corrupt at the top.
- DSingularity 5y ago
  Please stop speaking negatively about Americas man. He’s doing good for things for bro-colonialism dude. Those dictatorships are good for business and America’s business is business.
  - DSingularity 5y ago
    neo-colonialism*
- drc500free 5y ago
  MBS was accepted by the previous administration because Jared Kushner was convinced he was key to a Palestinian-Israeli peace treaty. That gave Erdogan leverage over the US, when he kept pounding the media drum with the footage he had of the Khashoggi murder. He used that to get the US to abandon the Syrian Kurds. We haven't yet seen if the new administration will view MBS the same way, but I doubt it. We've had two populist presidents in a row lose European control because they thought they knew better than their advisors about the Middle East. (Obama's version was surrendering Crimea to Putin so that Putin would give him an out for his Syrian "red line" blunder). This administration seems more boring and professional, like the staff have taken over the government for 4 years. So I don't think they have any misunderstanding of who MBS is and what value he does and doesn't provide.
  - AtlasBarfed 5y ago
    "MBS was accepted by the previous administration ..." I would like to paint Trump as the only bad apple, but the Saudis have likely paid off every American President in the last 40 years with a flood of shadow money. He was accepted by the previous administration because Trump got a healthy dose of that shadow money (there's a half-dozen on the front page of google search results alone). There's a half dozen stories about this for Trump. Here's one for Obama: https://www.denverpost.com/2019/10/29/middleman-helped-saudi-give-obama-inaugural/ https://www.denverpost.com/2019/10/29/middleman-helped-saudi... We now know the inauguration fund is a big shadow slush fund for presidents. So is the presidential library, and the usual post-term speech circuit and "consulting". These people and power structures exist because of concentrated oil wealth, and we should move towards alternative energy and BEVs to bankrupt these corrupt regimes and the corruption they exert on our country.
mmaunder 5y ago
Karma for Khashoggi. Bitch.
adventured 5y ago
> Saudi Arabia now has no alternative but to continue to sell off assets (the equivalent of selling the family silver, and this can only be done once), sell more bonds (taking on more debt and the interest on this form of Saudi debt is going up with every such sale), and cancel projects (which are crucial to the long-term success of Aramco) The article starts off with an especially history-ignorant premise. Of course Saudi Arabia has an alternative. The Middle East has a long history of nationalization as it pertains to oil resources. This is the House of Saud we're talking about. MBS is unwilling to nationalize the small private ownership of Aramco? Ha I say. I say, ha ha. Double ha. Ha ha ha ha. It's almost guaranteed that at some point in the future Saudi Arabia will re-nationalize Aramco in one manner or another. You see, Saudi Arabia is in a demographic death spiral. Not due to de-population as in some countries, rather, the exact opposite problem. Their population is exploding higher, without an economy to match. The single most important number as it pertains to Saudi Arabia, is barrels of oil produced per capita (however you want to formulate that, whether daily or annually). That overwhelmingly determines the standard of living of the people of Saudi Arabia, and ultimately dictates the stability of the House of Saud. So how is that number looking? In 1980 Saudi oil production was up near 10m barrels per day, with a population of 9.7 million - so almost one person per barrel of oil per day. A remarkable ratio for sure. Circa year 2000 oil production was 9.x million barrels per day, with a population then up to 20.7 million, so by that point it's down to less than half a barrel of oil per day per person; a halving in 20 years. During the pandemic time frame (ie another 20 years later)? 8 to 9 million barrels per day, and now their population is up to 35 million, so now it's down to ~1/4 of a barrel of oil produced per day per person, another halving in roughly 20 years. (Even if you pop that up to 10m barrels per day again in the next few years, their population is heading to 40m regardless, so 1/4 one way or another.) Implosion. It's very obvious what's going to happen to Saudi Arabia. They're adding 500k-700k people per year, with no economy to support any of those people. For the average citizen of Saudi Arabia, every person added to the population tally reduces the standard of living of the rest. At this point every ten years they're adding a population equal to 2/3 of where they were at in 1980, with zero additional oil production to match. Chaos and violent instability is coming for Saudi Arabia, you can bet Aramco is eventually getting nationalized again, whatever the reputation consequences.
- 5y ago
spoonjim 5y ago
If this causes the collapse of the Saudi monarchy this will be a good thing.
flowerlad 5y ago
I never understood why Americans consider Iran the enemy and Saudi Arabia the friend. Iran is a democracy, they appear to have legit elections, while Saudi is an absolute monarchy. Iranian women enjoy way better equality compared to Saudi Arabian women. As a software developer in the US I have even come across Iranian-born women software engineers. Iranians seem more modern in ever way. Citizens of both countries seem to hate America, but ordinary Iranian citizens never did a 911-style attack on the US. Is it because of historical reasons that Saudis are the friend and Iranians the enemy?
- ink_13 5y ago
  > they appear to have legit elections You might want to research this point more deeply.
  - NullPrefix 5y ago
    The 'legit elections' or the 'they [...] have' part?
  - nickik 5y ago
    The elections are legit, but you need to be vetted to be allowed to run and the position you gain is not all that powerful.
- nemothekid 5y ago
  >Citizens of both countries seem to hate America, but ordinary Iranian citizens never did a 911-style attack on the US. Is it because of historical reasons that Saudis are the friend and Iranians the enemy? The real quick spark notes are: Iran tried to socialize their Oil Production as they believed that Irani's deserved more than 10% of the profit generated instead of just paying Britain forever. In response the CIA did a coup d'état and there's been instability ever since. Naturally the US aligned itself with it's own oil company in the region (California-Arabian Standard Oil, which is now the Aramco) given that it had just made an enemy of Iran. I think a pretty weird quirk of history is that if you squint hard enough Aramco is technically a Silicon Valley startup, with beginnings in San Francisco that was one of the largest IPOs of 2020.
spiritplumber 5y ago
Oh no! Anyway.
deleted 5y ago
[deleted]
nemo44x 5y ago
Saudi Arabia will not exist anything like it’s current form within 20 years.
55555 5y ago
> In other words, each and every year, Aramco has to pay out around three times the entire amount that it received for the entire IPO. But actually, 95% of this dividend goes back to the Saudi government, right? So the real figure above is 0.15 times the entire amount that it received for the entire IPO.
- perl4ever 5y ago
  >But actually, 95% of this dividend goes back to the Saudi government, right? Tearing up a budget doesn't create more to spend. Making a budget doesn't result in less to spend.
vmception 5y ago
Everyone in Saudi Arabia are people we would drone strike if they were not a country (that we set up). All practices of ISIS are also domestic, enshrined in law, routinely practiced policies in Saudi Arabia. I don’t want to kill anyone in Saudi Arabia, I don’t find any moral stance for the droning/wars to be convincing, and I can completely acknowledge that the aforementioned terrorist groups that are being funded are perfectly capable of running a country and cease to be called terrorist groups when they accomplish their political goals of an Islamic state.
- llp80 5y ago
  Who is “we” here? Also, you are aware there are 35 million people in Saudi Arabia? You know, innocent women, children, people trying to make a living under an admittedly oft-corrupt system? Casually dismissing enough people to fill up California as drone strike eligible because you dislike sharia law and customs that aren’t yours speaks to the foulest, most bigoted type of person with whom I am ashamed to share air. You might as well just admit you hate Muslims and assume all of them are terrorists, and I say that as a bloody Jew. This comment has no place here and is the absolute worst mark on HN imaginable. You can’t really walk back your first two paragraphs with a third “well, actually, I’m making a more nuanced point”. Just vile remarks and absolutely nothing will be done about them, as is typical.
  - exolymph 5y ago
    He's right, though. I'm sure the vast majority of Yemenis are perfectly innocent and fuck-all good that does them. The observation about "drone strike eligible" populations is descriptive, not prescriptive, and it's about who is deemed expendable, not who should be (no one, obviously). That's the point of the third paragraph that you inexplicably dismissed.
    - llp80 5y ago
      Uh, no, he very much isn’t. The second paragraph is demonstrably false and is pretty obvious Islamophobia. It’s a disingenuous conflation of sharia law and a caliphate, and imagine how weird it is for me that I find myself explaining this, of all people.

160 points by syncsynchalt 5y ago

Seems like the critical missing piece of information is Aramco's annual profits. "Saudi Aramco profit of $49 billion in 2020 is down from $88.2 billion in 2019 and $111.1 billion in 2018." https://apnews.com/article/dubai-saudi-arabia-united-arab-emirates-health-coronavirus-pandemic-672f523f199c133b4b9c819eea5acf6b https://apnews.com/article/dubai-saudi-arabia-united-arab-em... ...so if 2020 was an off year due to the pandemic, then the $75 billion/yr dividend probably isn't going to bankrupt them in the short term.

stefan_ 5y ago

Surely the stakeholders that are paid this dividend remain overwhelmingly Saudi (government) interests. So they made up this dividend to loot the place. I'm sure they had other ways of looting prior. What's the big difference?

munk-a 5y ago
From the article at least - the pre-agreed dividend (a thing I had no idea existed) is so onerous on the company that it can't keep up with payments. So the company is being forced to sell off long term investments and assets for a quick buck just to cover the dividend it's agreed to pay. It's like saying: "Hey, I've got an ice cream stand that I make 50$ of a week and has capital assets worth 200$. I wonder if I contractually agreed to donate 75$ worth of value every week - would that work well for me?"
- deleted 5y ago
  [deleted]
- draw_down 5y ago
  That’s just rehashing what’s in the article. GP is not asking why the dividend is bad for the company.
- fy20 5y ago
  I wonder if there is something else going on, as this sounds like an awfully good way to cover up a sinking ship, yet still take money out for the stakeholders. In 5 years time when the company is bankrupt they can just come out and say the IPO was a bad idea, while the main stakeholders are sitting nicely in their gold plated Lamborghini's [0]. [0] I made that up, but turns out it is actually a thing: https://m.economictimes.com/nation-world/strange-things-saudi-princes-spent-money-on/when-money-matters/slideshow/56999098.cms https://m.economictimes.com/nation-world/strange-things-saud...
LatteLazy 5y ago
I think generally the looting is done at the top and then drip fed down: a Prince loots 100m and keeps 20 and passed 80 down to lessor and lessor people. That maintains their loyalty to that Prince. In roughly the same people get a dividend direct from SA, they don't have to keep coming and asking their particular prince or supporting his other efforts etc. This seems like it cuts out a lot of the middle men and just leaves MBS and the recipient... Also, as in understand it, a lot of people were basically forced to buy shares whether they wanted to or not (or lose favour). A big dividend semi reverses that. It's like forcing someone to pay a big fine then, majestically giving half back to show you're a beneficent and merciful king.
random314 5y ago
I found the dividend situation confusing too. On Google finance the dividend yield is 4%. Afaik, only 10% of the stock is not being held by the saudi government. Assuming 2T market cap, the dividend obligation is 8B$ to shareholders. But the article indicates an order of magnitude higher dividend obligation. Are there dividend obligations above and beyond what's visible in Google finance?
- perl4ever 5y ago
  I believe a greater dividend has been promised than what is current, and the large figures are including the stock held by the government.
perl4ever 5y ago
People are like "oh, they're just paying it to themselves". Well, sure, they don't have to write down the dividend they pay to themselves, but that doesn't change the spending that presumably is allocated from the dividend. One motivation for formalizing things that you don't have to is that then you have better excuses for not doing certain things. While they made up the dividend, it wouldn't make "looting the place" more sustainable to get rid of it. Formalizing the "looting" does highlight its unsustainability and seems like a reasonable reason to write an article to me.

nelsondev 5y ago

With electric cars an inevitability, and natural gas outperforming oil; seems MBS is squeezing every cent out of Aramco while it is still worth something.

munk-a 5y ago
I'm curious if the house of Saud could survive Aramco collapsing though. For everything terrible you feel about them - they are constantly shoveling a whole boatload of value into a decent chunk of their population. If Aramco falls I think Saudi Arabia might find a lot of people that were happy to look the other way while they were being paid suddenly asking a lot of questions about national policies.
- fakedang 5y ago
  The average Saudi does not live as comfortable a life compared to the 100k or so members of the Al Saud family and their cronies. You're right about the latter part though. An Aramco failure is going to be a significant dent on MBS' domestic perception.
  - munk-a 5y ago
    Yea, I agree. I'd clarify that "A decent chunk" above is meant to specifically refer to the politically powerful part of Saudi Arabia. Basically, the keys to power - so very few women and none of the poor folk.
    - martinald 5y ago
      Actually, I don't know how true this is. Saudi Arabia has an enormous welfare state - both officially with many subsidies, and and hoc "grants" that you can get off your local royal family representative for one off emergency expenses etc. In many ways this is what is bankrupting the country, much more than the rampant corruption (which is still enormous, but pales into comparison with public spending). The population of Saudi is absolutely exploding - nearly doubling every 20 years. It has a very young population with poor job opportunities, in a very energy intensive place to house people (AC demands and lack of fresh water). This had led to completely unsustainable public spending. The revenue from oil is enormous but it's not growing in line with population and welfare spending. And the Saudi royal family know the people will turn quickly against them if the welfare tap is turned off. They are in a really tricky position. While the royal family is outrageously wealthy, the country itself over the past decade is getting pretty broke. And with such population growth every year it becomes harder and harder to keep up. I imagine this is why MBS is trying to push economic reform so much, almost at all costs, because he knows the game is up. But it is going to be very difficult to turn this quite literal oil tanker around.

paxys 5y ago

Straight from the most trusted source of news & opinion in the investment world – oilprice.com. Aramco's dividend basically entirely goes to the Saudi government, which owns 98.5% of the company. It is still comfortably the largest oil company in the world, and is investing hundreds of billions in operations over the next few years. Here's a much more objective status report on the company – https://www.bloomberg.com/news/articles/2021-07-07/saudi-aramco-to-sell-more-assets-in-multi-billion-dollar-push https://www.bloomberg.com/news/articles/2021-07-07/saudi-ara....

dragontamer 5y ago
Somehow the writing style was bothering me and I couldn't quite put my finger on it. It was reading like a long-form Reddit rant more so than an actual article. Bloomberg one seems more based in facts on the ground. ------- That being said: the opinionated writing style of "oilprice.com" is still helpful at possibly explaining why these assets are being sold. But facts matter and should come first: the news event (Armaco deciding to sell more assets) should be presented objectively at some point before introducing an opinion about it.
- Karrot_Kream 5y ago
  > This took the total capital spending down from around US$40 billion to around US$25 billion. Further reports stated that even this US$25 billion figure was reduced by another US$5 billion, taking the total capital spending in the year from US$25 billion to US$20 billion. However, every second of every day of every month of every year - whatever Aramco does, whatever it sells, whatever it cancels, whatever it cuts back, however many people it sacks – the meter keeps on running, adding US$205 million every day Notice the convenient change of units between billions and millions there which makes this seem much worse than it actually is. I also didn't realize Oilprice's bias, but seeing that change of units certainly warned me.
  - jsnell 5y ago
    The dividend "millions" are per day. The capital spending "billions" are per year. We'd already repeatedly been told that the dividends were 75 billion per year.

HenryKissinger 5y ago

What would stop Saudi Aramco from stopping all dividends and unilaterally write off its own debt?

eyelovewe 5y ago
Cultural values that would mean MBS and the House of Saud loses face and honor. (And future access to money)
munk-a 5y ago
I am curious about that as well since the article mentions > The most desperate of these was the pledge to guarantee a dividend payment to shareholders in Aramco of US$18.75 billion every single quarter of every single year – a total of US$75 billion every single year. I've never heard of a contractually binding agreement to drive yourself into bankruptcy via an overly generous dividend. From this FT article[1] it does sound like it's pretty voluntary though > Mr Nasser told reporters that “our intention is to pay $75bn, subject to board approval and depending on market conditions”. Minority shareholders, who own 1.5 per cent of the company, will be “protected” for the next five years and given priority payments, he said. 1. https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4914 https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4...
JumpCrisscross 5y ago
> What would stop Saudi Aramco from stopping all dividends and unilaterally write off its own debt? Nothing. Argentina defaults on its debt every Christmas, and its bonds still get bought. Aramco’s are a non-sovereign corporate’s equity dividends, where most of the shares are owned by the Saudi government and royal family.
- gruez 5y ago
  >Nothing. Argentina defaults on its debt every Christmas, and its bonds still get bought wtf? Every christmas every year?
  - 55555 5y ago

habibur 5y ago

"Aramco’s debt to equity increased from minus 5 percent in early 2020 to plus 23 percent in March this year, where company’s own cap was 15 percent." And it went IPO in Dec 2019.

draw_down 5y ago

This is a funny read, though I’m not sure it’s meant to be.

bostonsre 5y ago

Is bankruptcy an option that this autocratic regime would take for their company or would it be too detrimental to the image of mbs? What happens if they just decide to stop paying international debt/bond holders? Is that even an option?

danans 5y ago
The old adage goes: "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." So perhaps somewhat conversely: "If the Saudis owe you $1 billion and decide not to pay you, that's your problem."
elliekelly 5y ago
Argentina did. Several times I think. It actually turned into an interesting legal issue (if you find the technicalities of these things interesting, at least) because of the language used in the settlement. https://en.m.wikipedia.org/wiki/Argentine_debt_restructuring https://en.m.wikipedia.org/wiki/Argentine_debt_restructuring
reducesuffering 5y ago
Oh it's an option. Just one that would preclude receiving anymore foreign investment for the next several decades.

moralestapia 5y ago

I can't feel bad for them. I lived there for four years (at KAUST), I am deeply familiar with the country and its people. The Saudis are nice and well-intended, but a few bad apples spoil the bunch. I left after my 4yo daughter was kidnapped(!) when I refused to sign some papers regarding my work situation. I am not making this up. The kidnapping was carried away by an Australian professor and a couple American guys working there, but when I tried to look for help I was horrified that this seemed to be business as usual and no one even batted an eye, no jurisdiction. Fortunately, we are safe now and doing better than ever, but, what a story. Until they fix many of these things it will be very hard for them to establish a thriving economy.

mensetmanusman 5y ago
KAUST was pushed hard as an option while I was at MIT, very curious as to how well the instruments were maintained for research, since it seemed like they bought anything asked for (if you have any stories :)).
- moralestapia 5y ago
  Oh, I can write a book about all of the things I saw there! Send me an email (check profile) and we can chat for sure.
  - moltar 5y ago
    Please do a podcast series. A great example of a successful one is about the fiasco of building a Berlin airport. If you don’t want to produce yourself maybe reach out to a podcast studio. I’d looove to listen to your stories :)
    - moralestapia 5y ago
      That would be very nice. I'm actually collecting stories about academic abuse from all around the world. The plan is to launch a website with all stories together to get more exposure. This sort of abuse (not to the degree of what I suffered, but) is quite common within academy, this needs to stop, and the people who perform it/enable it need to be ousted from their positions.

kaminar 5y ago

How many outstanding shares? Are all shares entitled to the dividend?

munk-a 5y ago
According to an FT article I found[1] while digging up information about how mandatory the dividend is - it looks like minority shareholders are being given preference in receiving the dividend. Which makes a lot of sense if this was more of a PR stunt and less an effort to pull a bunch of company value into MBS's personal bank account. 1. https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4914 https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4...

FridayoLeary 5y ago

This might be controversial, but MBS sounds like a horrible, horrible person. Yes, he presents a civilized face to the West, and he's "progressive", but just look at the Khashoggi murder for example. But people seem to be blind to this very dark side of the Saudi leadership. He lets women drive. So that means he's an open minded liberal. What about every other country in the world where women have been allowed to drive since forever? I think it's hard to fix an institution that's corrupt at the top.

DSingularity 5y ago
Please stop speaking negatively about Americas man. He’s doing good for things for bro-colonialism dude. Those dictatorships are good for business and America’s business is business.
- DSingularity 5y ago
  neo-colonialism*
drc500free 5y ago
MBS was accepted by the previous administration because Jared Kushner was convinced he was key to a Palestinian-Israeli peace treaty. That gave Erdogan leverage over the US, when he kept pounding the media drum with the footage he had of the Khashoggi murder. He used that to get the US to abandon the Syrian Kurds. We haven't yet seen if the new administration will view MBS the same way, but I doubt it. We've had two populist presidents in a row lose European control because they thought they knew better than their advisors about the Middle East. (Obama's version was surrendering Crimea to Putin so that Putin would give him an out for his Syrian "red line" blunder). This administration seems more boring and professional, like the staff have taken over the government for 4 years. So I don't think they have any misunderstanding of who MBS is and what value he does and doesn't provide.
- AtlasBarfed 5y ago
  "MBS was accepted by the previous administration ..." I would like to paint Trump as the only bad apple, but the Saudis have likely paid off every American President in the last 40 years with a flood of shadow money. He was accepted by the previous administration because Trump got a healthy dose of that shadow money (there's a half-dozen on the front page of google search results alone). There's a half dozen stories about this for Trump. Here's one for Obama: https://www.denverpost.com/2019/10/29/middleman-helped-saudi-give-obama-inaugural/ https://www.denverpost.com/2019/10/29/middleman-helped-saudi... We now know the inauguration fund is a big shadow slush fund for presidents. So is the presidential library, and the usual post-term speech circuit and "consulting". These people and power structures exist because of concentrated oil wealth, and we should move towards alternative energy and BEVs to bankrupt these corrupt regimes and the corruption they exert on our country.

mmaunder 5y ago

Karma for Khashoggi. Bitch.

adventured 5y ago

> Saudi Arabia now has no alternative but to continue to sell off assets (the equivalent of selling the family silver, and this can only be done once), sell more bonds (taking on more debt and the interest on this form of Saudi debt is going up with every such sale), and cancel projects (which are crucial to the long-term success of Aramco) The article starts off with an especially history-ignorant premise. Of course Saudi Arabia has an alternative. The Middle East has a long history of nationalization as it pertains to oil resources. This is the House of Saud we're talking about. MBS is unwilling to nationalize the small private ownership of Aramco? Ha I say. I say, ha ha. Double ha. Ha ha ha ha. It's almost guaranteed that at some point in the future Saudi Arabia will re-nationalize Aramco in one manner or another. You see, Saudi Arabia is in a demographic death spiral. Not due to de-population as in some countries, rather, the exact opposite problem. Their population is exploding higher, without an economy to match. The single most important number as it pertains to Saudi Arabia, is barrels of oil produced per capita (however you want to formulate that, whether daily or annually). That overwhelmingly determines the standard of living of the people of Saudi Arabia, and ultimately dictates the stability of the House of Saud. So how is that number looking? In 1980 Saudi oil production was up near 10m barrels per day, with a population of 9.7 million - so almost one person per barrel of oil per day. A remarkable ratio for sure. Circa year 2000 oil production was 9.x million barrels per day, with a population then up to 20.7 million, so by that point it's down to less than half a barrel of oil per day per person; a halving in 20 years. During the pandemic time frame (ie another 20 years later)? 8 to 9 million barrels per day, and now their population is up to 35 million, so now it's down to ~1/4 of a barrel of oil produced per day per person, another halving in roughly 20 years. (Even if you pop that up to 10m barrels per day again in the next few years, their population is heading to 40m regardless, so 1/4 one way or another.) Implosion. It's very obvious what's going to happen to Saudi Arabia. They're adding 500k-700k people per year, with no economy to support any of those people. For the average citizen of Saudi Arabia, every person added to the population tally reduces the standard of living of the rest. At this point every ten years they're adding a population equal to 2/3 of where they were at in 1980, with zero additional oil production to match. Chaos and violent instability is coming for Saudi Arabia, you can bet Aramco is eventually getting nationalized again, whatever the reputation consequences.

5y ago

spoonjim 5y ago

If this causes the collapse of the Saudi monarchy this will be a good thing.

flowerlad 5y ago

I never understood why Americans consider Iran the enemy and Saudi Arabia the friend. Iran is a democracy, they appear to have legit elections, while Saudi is an absolute monarchy. Iranian women enjoy way better equality compared to Saudi Arabian women. As a software developer in the US I have even come across Iranian-born women software engineers. Iranians seem more modern in ever way. Citizens of both countries seem to hate America, but ordinary Iranian citizens never did a 911-style attack on the US. Is it because of historical reasons that Saudis are the friend and Iranians the enemy?

ink_13 5y ago
> they appear to have legit elections You might want to research this point more deeply.
- NullPrefix 5y ago
  The 'legit elections' or the 'they [...] have' part?
- nickik 5y ago
  The elections are legit, but you need to be vetted to be allowed to run and the position you gain is not all that powerful.
nemothekid 5y ago
>Citizens of both countries seem to hate America, but ordinary Iranian citizens never did a 911-style attack on the US. Is it because of historical reasons that Saudis are the friend and Iranians the enemy? The real quick spark notes are: Iran tried to socialize their Oil Production as they believed that Irani's deserved more than 10% of the profit generated instead of just paying Britain forever. In response the CIA did a coup d'état and there's been instability ever since. Naturally the US aligned itself with it's own oil company in the region (California-Arabian Standard Oil, which is now the Aramco) given that it had just made an enemy of Iran. I think a pretty weird quirk of history is that if you squint hard enough Aramco is technically a Silicon Valley startup, with beginnings in San Francisco that was one of the largest IPOs of 2020.

spiritplumber 5y ago

Oh no! Anyway.

deleted 5y ago

[deleted]

nemo44x 5y ago

Saudi Arabia will not exist anything like it’s current form within 20 years.

55555 5y ago

> In other words, each and every year, Aramco has to pay out around three times the entire amount that it received for the entire IPO. But actually, 95% of this dividend goes back to the Saudi government, right? So the real figure above is 0.15 times the entire amount that it received for the entire IPO.

perl4ever 5y ago
>But actually, 95% of this dividend goes back to the Saudi government, right? Tearing up a budget doesn't create more to spend. Making a budget doesn't result in less to spend.

vmception 5y ago

Everyone in Saudi Arabia are people we would drone strike if they were not a country (that we set up). All practices of ISIS are also domestic, enshrined in law, routinely practiced policies in Saudi Arabia. I don’t want to kill anyone in Saudi Arabia, I don’t find any moral stance for the droning/wars to be convincing, and I can completely acknowledge that the aforementioned terrorist groups that are being funded are perfectly capable of running a country and cease to be called terrorist groups when they accomplish their political goals of an Islamic state.

llp80 5y ago
Who is “we” here? Also, you are aware there are 35 million people in Saudi Arabia? You know, innocent women, children, people trying to make a living under an admittedly oft-corrupt system? Casually dismissing enough people to fill up California as drone strike eligible because you dislike sharia law and customs that aren’t yours speaks to the foulest, most bigoted type of person with whom I am ashamed to share air. You might as well just admit you hate Muslims and assume all of them are terrorists, and I say that as a bloody Jew. This comment has no place here and is the absolute worst mark on HN imaginable. You can’t really walk back your first two paragraphs with a third “well, actually, I’m making a more nuanced point”. Just vile remarks and absolutely nothing will be done about them, as is typical.
- exolymph 5y ago
  He's right, though. I'm sure the vast majority of Yemenis are perfectly innocent and fuck-all good that does them. The observation about "drone strike eligible" populations is descriptive, not prescriptive, and it's about who is deemed expendable, not who should be (no one, obviously). That's the point of the third paragraph that you inexplicably dismissed.
  - llp80 5y ago
    Uh, no, he very much isn’t. The second paragraph is demonstrably false and is pretty obvious Islamophobia. It’s a disingenuous conflation of sharia law and a caliphate, and imagine how weird it is for me that I find myself explaining this, of all people.