Dubai — Saudi Arabia may not be able to rely on annual dividends of almost $75bn from state oil company Saudi Aramco beyond 2021 unless crude prices increase, according to Moody’s Investors Service.

The Saudi government, which owns 98% of Aramco, has depended on the dividend to help plug its budget deficit.

“The government is unlikely to be able to repeat the manoeuvre beyond 2021,” Moody’s said in a report. This is the case “particularly when taking into account Saudi Aramco’s own capital expenditure needs and its commitment” to buying Saudi Basic Industries Corporation (Sabic).

Aramco agreed earlier this year to buy 70% of the chemicals maker from the Public Investment Fund of Saudi Arabia for $69bn.

Aramco pledged during its 2019 initial public offering to pay out $75bn to shareholders during its first five years as a publicly traded company. It has since reaffirmed that commitment. Yet, crude prices have fallen amid the coronavirus pandemic and are 35% lower this year. Aramco, meanwhile is pumping and selling less oil under a deal among global producers to reduce supply.

To honour its dividend pledge, the world’s biggest exporter has said it will decrease spending and has laid off hundreds of workers and announced plans to sell off non-core assets.

Despite taking these steps, the company’s gearing ratio has risen, from -5% at the end of March — meaning Aramco had more cash than debt — to 20% in June, above its targeted range of 5% to 15%. That’s largely due to the debt it took on to acquire Sabic.

Last week, Saudi Arabia published an overview of its spending plans for the next three years that envisages annual cuts to help contain its budget deficit. The plans were based on oil prices of about $50 a barrel, according to a Goldman Sachs Group  analysis. Benchmark Brent crude was trading on Thursday at about $43 a barrel.



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