Saudi Aramco: Would it stands to its promises?
Saudi Aramco has announced that it will publish its interim financial results for Q1 of this year on May 12.
The challenge of the company in Q1 of this year and the remaining subsequent quarters of the year is to keep up to its promises as stated in the IPO’s prospectus that it will remains committed to its dividend policy for public shareholders, especially in such difficult time as the whole world is faced with Coronavirus (COVID-19) challenges and its negative impact on businesses.
Furthermore, is the company able to demonstrate its agility to response to the significant changes and volatility of the oil market, were the price of oil has fallen in Q1 of this year to US$20 (pb) from US$60 (pb) in 2019.
By way of background, when the company decided to go public, it has promised its shareholders as described in the company’s IPO prospectus and subject to the board of directors’ approval, to declare an aggregate ordinary cash dividend of at least $75.0 billion a year, to be paid on quarterly basis.
First quarter of this year dividends are anticipated to be announced along with the Company’s first quarter 2020 financial results, which are expected to be published as mentioned on May 12, 2020.
Additionally, the company has promised to grant an investor who continuously and uninterruptedly holds offer shares allocated to him for the bonus holding Period, will be entitled to receive one bonus share for every ten allocated offered shares so held, up to a maximum of 100 bonus shares.
The one-million-dollar question is, would the company be able to keep up to its promises, especially when considering the negative impact of Coronavirus (COVID-19) and the significant drop in both oil prices and the demand?
My believe that Aramco is able to keep up to its promise and stand to its commitment, since the company is still despite the challenges mentioned, a very solid financially, generating SAR.294 billion (US$78 billion) in free cash flow as of year-end 2019.
Also, the company possess most of the competitive strengths and advantages compared to the rest of major international oil companies with regard to its excellent operating cash flow and free cash flow and strong earnings, as for example evidenced by achieving the company SAR. 331 (US$88) billions of net income last year with borrowing percentage of -0.2.
To conclude, Saudi Aramco remains committed to its dividend policy for public shareholders, furthermore it is able to demonstrate its agility and responsiveness during these difficult and challenging times.