Saudi Arabia is looking to plug budget gaps by having its state-run oil giant, Saudi Aramco, sell some stakes in its subsidiaries, according to anonymous Bloomberg sources.
The Kingdom’s oil company has hired Moelis & Co. to come up with a plan to sell stakes In Aramco’s pipelines for the purpose of coming up with nearly $10 billion.
The move comes after Saudi Arabia’s neighbor, Abu Dhabi, engaged in a similar cash-raising activity as it, too, looks to bring in billions to prop itself up during what has become a major recession due to the low oil prices as a result of the pandemic.
Saudi Arabia’s budget has been struggling with the low oil prices and its burden of oil production cuts as a result of its OPEC agreement. Aramco reported a 44.6% decrease in its profits for the third quarter this year, to $11.9 billion, from $21.29 billion in the third quarter last year.
As a major contributor to the government of Saudi Arabia, and with Saudi Arabia holding a 98% stake in Saudi Aramco, Aramco’s financial well-being directly determines the well-being of Saudi Arabia in general.
Aramco’s perusal of pipeline deals to raise cash serve as a grim warning to the oil market, whose fate is tied to the pandemic and the resulting low oil demand, a fact that remains outside of both Saudi Arabia’s and OPEC+’s control.
The situation is dire for Crown Prince Mohammed bin Salman, who has promised to diversify the economy away from oil by 2030—a plan which relies on Aramco revenues to bring to fruition.
Aramco has already cut CAPEX, and this stake sale is the next logical step.