Saudi Arabia expected to encourage generous Aramco dividend policy

S&P estimates that the Saudi construction sector accounts for about 8 percent of total bank loans in the country. (Reuters)
Updated 07 October 2017
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Saudi Arabia expected to encourage generous Aramco dividend policy

LONDON: A “generous” dividend policy would help to align the interests of Saudi Aramco investors and the government, S&P said in a report.
The rating agency noted that a reduction in income tax rates for the larger hydrocarbons producers earlier this year means that the government will be encouraged to push the national oil company to offer attractive dividends when it floats.
A plan to list Saudi Aramco in 2018 is on track, the company’s CEO confirmed this week. The flotation of about 5 percent of Saudi Aramco is a centerpiece of Vision 2030, a wide-ranging reform plan to diversify the Saudi economy beyond oil.
The Kingdom this year reduced the tax rate for the largest oil producers like Saudi Aramco to 50 percent from 85 percent. That is in addition to a 20 percent royalty payment the company makes to the government.
“The government will now be incentivized to encourage Saudi Aramco to follow a generous dividend policy to compensate for the reduction in tax revenues,” said S&P in a report published over the weekend that affirmed the Kingdom’s ratings.
“In this way, the interests of investors and the government will be more aligned,” it said.
Because the ultimate use of the proceeds from the IPO has not yet been defined, S&P did not factor them into its projections for the non-oil economy which it expects to grow by about 1 percent this year and next.
The Kingdom is expected to “consolidate its public finances to ensure liquid assets are maintained” close to total economic output over the next two years, S&P noted.
The agency affirmed its foreign and local currency rating and said the country had a stable outlook.
Saudi Arabia last year announced the National Transformation Program (NTP) — which offers structure and detail to Vision 2030, the country’s blueprint for economic and social transformation.
Among the targets included in the plan is the creation of 450,000 private sector jobs by the end of the decade and an increase of the private sector’s share of the economy to 60 percent from 40 percent in 2014.
It also aims to boost education and increase home ownership to 52 percent by 2020 from 47 percent.
The total budgeted cost of the NTP is more than SR268 billion ($71.4 billion) — or about 12 percent of gross domestic product (GDP).
S&P expects the NTP could result in “accelerated economic growth” and an overall rebalancing of the economy.
But it noted that much depends on achieving challenging targets over a number of years.
The construction sector in the Kingdom still faces payment pressures and the industry accounts for about 8 percent of total bank loans, S&P estimates.
It expects non-performing loans to rise to between 2 percent to 3 percent over the next two years from about 1.4 percent at the end of last year — largely due to construction exposure
S&P said it expected Saudi Arabia’s external and government balance sheet positions to remain strong over the next three years.
The IMF last week estimated that the Kingdom may get a budget boost of more than $90 billion by 2020 from new taxes and changes to subsidies but cautioned that it should slow the pace of reforms.


Siemens CEO pushes plans to boost Iraqi power infrastructure

Updated 22 min 48 sec ago
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Siemens CEO pushes plans to boost Iraqi power infrastructure

FRANKFURT: Siemens said its boss Joe Kaeser met Iraq’s prime minister on Sunday to discuss a proposal by the German company to expand the Middle East nation’s power production.
The German engineering group said it was proposing a deal to add 11 gigawatt (GW) of capacity over four years, saying this would boost the country’s capacity by nearly 50 percent.
It did not give a value, but such a contract would be worth several billion euros based on previous comparable deals.
Iraq has a wide gap between electricity consumption and supply. Peak demand in the summer, when people turn on air conditioners due to high temperatures, is about 21 GW, far exceeding the 13 GW the grid is currently provides, experts say.
Kaeser said in a statement after meeting Prime Minister Al-Abadi that they had “discussed the comprehensive Siemens roadmap to build a better future for the Iraqi people.”
“In Egypt, we have done the same and successfully built up the power infrastructure in record time with the highest efficiency,” he said.
In 2015, Siemens signed an 8 billion euro ($9.4 billion) deal with Egypt to supply gas and wind power plants to add 16.4 gigawatts of capacity to the country’s power grid, marking the group’s single biggest order.
The proposal for Iraq, first pitched in February, would include cutting Iraq’s energy losses, introducing smart grids, expanding transmission grids, upgrading existing plants and adding new capacity.
The group would also help the government secure funding from international commercial banks and export credit agencies with German government support, creating thousands of jobs in Iraq.
Siemens would donate a $60 million grant for software for Iraqi universities, it said.