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Saudi Firms to Cut Dividends For Princeâs $1.3 Trillion Plan
(Bloomberg) — Saudi Arabiaâs biggest listed companies, including energy giant Aramco, will reduce their dividends and redirect the money to the local economy as the crown prince tries to get his economic overhaul plan back on track.Minority shareholders of Aramco — the worldâs biggest oil company and 98% owned by the kingdom — will still get dividends, Mohammed bin Salman, the kingdomâs de facto leader, said. Investors in other firms will profit because stock prices will rise as the extra investment boosts the economy, he said.Twenty-four firms 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) of domestic capital spending over the next 10 years, he said.The new plan comes after last yearâs coronavirus pandemic and oil market turmoil created a double crisis for Saudi Arabia, setting back the 35-year-oldâs goals to boost the non-oil economy and slash unemployment.The companies will benefit from extra subsidies and the ability to lobby for law changes, the prince said. The Saudi stock market was up 1.5% at 10.43 a.m. in Riyadh, while Aramco shares gained 1.4%.âWhat weâre trying to create is growth in Saudi Arabia: growth in GDP, more jobs in Saudi Arabia, more income to the Saudi government and a better life for Saudis,â Prince Mohammed said Tuesday during a night-time briefing with journalists in Riyadh. âThat will not harm the shareholders of those companies because instead of getting dividends in cash, youâre going to get growth in the stock market.âRadical TransformationCutting dividends for reinvestment purposes is not necessarily negative news for investors in Saudi markets, according to Hedi Ben Mlouka, chief executive officer at FIM Partners in Dubai.âYouâll lose on the dividend yield but youâll gain on growth momentum,â he said to Bloomberg Television on Wednesday. âThatâs the way any long-term investor should look at it. This is a country going through transformation. You need to accept change like this that is radical.âThe 5 trillion riyals from private firms is part of a 27 trillion-riyal investment strategy Prince Mohammed outlined for the next 10 years. Central government spending will account for around 10 trillion riyals, while the sovereign wealth fund previously announced that it plans to invest 3 trillion riyals on top of that.Read more: Saudi Jobs for Saudis Is Crown Princeâs Generational ChallengeAnother 4 trillion riyals will come from private investments, while the final 5 trillion riyals will come from ordinary consumer spending.Diversify the EconomyThe announcement underlined the extent to which the princeâs focus is turning domestic as he tries to diversify the economy of the worldâs largest oil exporter and create enough jobs for the kingdomâs youthful population. It also showed that the government is counting on the struggling private sector to boost growth — which has long depended primarily on state spending.âItâs definitely a squeeze on businesses, to mandate domestic investment,â said Karen Young, resident scholar at the American Enterprise Institute in Washington. âHeâs seeing multiple generations of shared savings as his and his generationâs to spend, and so the gamble is that heâs going to be able to deploy this and jump-start a post-oil era.âThe government is still negotiating with other companies to join the program, but around 60% of the 5 trillion riyals will come from Aramco and Sabic alone.âThe dividend of the stakeholder for Aramco is going to be stable,â the crown prince said. âWe promised them that, and we are going to keep our promise.âThe Saudi government promised before Aramcoâs initial public offering in late 2019 that minority investors would get their share of a $75 billion annual dividend regardless of the oil price. That payout would last for at least five years, the government said.Aramco increased borrowing last year, even as crude prices fell, to keep up payouts to both the state and stock-market investors.The company already has a huge capital expenditure plan, saying it would spend $35 billion this year.âGoing to SellâIn return for the firmsâ participation, âweâre going to give them subsidies, weâre going to change the laws as they wish and weâre going to do their wish list to make that happen,â Prince Mohammed said.He also said that the kingdomâs wealth fund, the Public Investment Fund, would look to sell off some of its local holdings in order to support new investments.Read more – What Now for Saudi Arabiaâs Planned $2 Trillion Fund?âWe shouldnât keep our share forever, whatever mature investment we have, weâre going to sell,â the prince said. âSo if you own 70% of a company then thatâs wrong — PIF would own 30% of that company and they will sell that 40%.âLast year the PIF completed the sale of its 70% stake in Sabic to Aramco, in a deal that raised about $70 billion. The PIF holds large stakes in many Saudi companies, most notable Saudi Telecom Co and National Commercial Bank. The prince didnât comment on any specific asset sales the PIF was planning.Overall, 90% of the 27 trillion-riyal plan will come from within Saudi Arabia, he said. Around 2 trillion riyals is expected to come from foreign investment, including from the Middle East and Western and Asian investors. That would translate to more than $50 billion of foreign investment per year, compared to $4.6 billion in 2019.âYes, itâs ambitious. Yes weâve said a lot of ambitious things in the past four years,â said the crown prince. âI believe we can deliver that in the next 10 years.â(Adds stock-market reaction.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.